
ClasstiiJLlAZ- 
Book__. .F4 

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COI?UUGHT DEPOSm 



BUSINESS LAW 



BY 

PERCY C. FEGER, A.B., LL.B. 

MEMBER OF THE PHILADELPHIA BAR ; INSTRUCTOR IN COMMERCIAL LAW 
AT PEIRCE SCHOOL 



PEIRCE SCHOOL 

PHILADELPHIA 
1917 



ijFlZ37 

.FA 



COPTRIQHT, 191 7. BY PEIRCE SCHOOL 



JAN I6ISI7 



Electrotyped and Printed by J . B. Lippincotl Company 
At the Washington Square Press, Philadelphia, U. S. A. 



©CI.A4r)8()60 



INTRODUCTION 

Commercial law means that body of law which par- 
ticularly concerns commerce or trade; but in the fol- 
lowing lectures an attempt has been made briefly to 
summarize those rules of law which affect human rela- 
tionships generally; and to acquaint the student not 
only with the usages and customs of business — such as 
the purchase and sale of commodities^ methods of pay- 
ment and the conduct of corporations and partnerships 
— but to explain those everyday contacts and occurrences 
which^ if misunderstood^ may cause great trouble and 
sometimes loss to any one of us. 

No attempt is made to discuss abstract principles of 
law except in so far as such discussion is absolutely 
necessary. The students of business schools are learning 
to be practical men and women and a course in Business 
Law should assist them to lead useful lives without at- 
tempting to educate them for the practice of the law. 

The blank pages are inserted for the use of the stu- 
dent who should be encouraged to work out his own prob- 
lems illustrating the text. 



CONTENTS 

CHAPTER PAGE 

Introduction iii 

I. Man's Rights and Duties 1 

II. Contracts — In General 9 

III. Contracts — Classified 13 

IV. Essential Parts op Contracts — Considera- 

tion — Real Agreement, Etc 17 

V. Essential Parts op Contracts — -Real Agree- 
ment, Etc. (Continued) 21 

VI. Essential Parts op Contracts — -Legality op 

♦ Object 29 

VII. Essential Parts op Contracts — Legal Form 37 
VIII. Essential Parts op Contracts — Competent 

Parties — Feme Sole Traders. 41 

IX. Discharge op Contracts 46 

X. Discharge op Contracts (Continued) 54 

XL Joint and Joint and Several Contracts — Con- 
tracts POR the Benefit op Third Persons . 62 
XII. Sales of Personal Property 69 

XIII. Sales op Personal Property (Continued) ... 77 

XIV. Assignments — -Comparison Between Assign- 

ment AND Negotiation 82 

XV. Bills and Notes — -Essentials op Negotiable 
Instruments — Form of the Contract Ex- 
plained 90 

XVI. Bills and Notes (Continued) — Effect of 

Negotiation — Indorsements 98 

XVII. Bills and Notes (Continued) — Contracts of 

the Parties Analysed 106 

XVIII. Bills and Notes (Continued) — Presentment 

FOR Payment — Notice op Dishonor 113 

XIX. Bills and Notes (Continued) — Protest 122 

XX. Bills and Notes (Concluded) — Miscellane- 
ous : 126 

V 



vi CONTENTS 

XXI. Judgment Notes — Judgments — Exemption. . . . 1*33 
XXII. Mortgages and Conveyances 141 

XXIII. Estates— Wills 150 

XXIV. Partnerships 165 

XXV. Corporations — Joint Stock Companies — ■ 

Building and Loan Associations 181 

XXVI. Torts — Crimes — ^Writ of Habeas Corpus 194 

XXVII. Courts — Statute of Limitations — Set-off. . . . 202 

XXVIII. Civil Procedure. 214 

XXIX. Criminal Procedure 222 

XXX. Bankruptcy 233 

XXXI. Interstate Commerce Commission — Public 

Service Commissions 246 



MAN'S RIGHTS AND DUTIES 

GOVERNMENT 

The relationships of mankind are varied and com- 
plex but may be briefly divided into two great classes : 

1. Those with God. 

2. Those with our fellow-man. 

With the former we have no concern here, directing our 
attention to the latter class of relationships having to 
do with man's rights and duties among his fellows. It 
is well to bear in mind that no right can exist unless 
there is a corresponding duty. This is a paraphrase of 
the old saying that '^ you never can get something for 
nothing *^ ; somewhere you will have to pay. Those ad- 
vantages that we enjoy as citizens we may be obliged to 
pay for even with our lives. The right to live in a com- 
munity which enjoys fire and police protection is paid 
for by our submission, sometimes involuntarily, to various 
regulations and restrictions. 

Rights and Duties Classified. — Man's relations to 
his fellow-man may be considered under two headings : 

1. Those rights and duties which he takes for and 
upon himself voluntarily. 

2. Those which he enjoys as a citizen and which are 
imposed upon him by the community. 

In a commercial sense the first classification is of 
greater importance, including as it does all contractual 
relationships; but in the life of the average citizen the 
latter classification affects him more intimately, as it 
includes crimes and torts. 

1 



2 BUSINESS LAW 

Voluntary Obligations. — Nearly all voluntary 
rights and duties arise out of contract or agreement 
between two or more persons where each gives 
something to the other in return for what he, himself, 
receives. When a man contracts or agrees with another, 
he must do so voluntarily; if he is compelled to do so, 
it is not a contract. 

Involuntary Obligations. — Considering the mean- 
ing of the second classification, however, a man is com- 
pelled to do or not to do certain things. Thus he must 
pay his taxes and his water-rent; nor may he injure 
another's person or property. The student will observe 
that what he does voluntarily, he does for his own direct 
benefit ; whereas, what he is required to do involuntarily 
is for the good of the community and bis fellow-citizens. 

GOVERNMENT 

Theory of Government. — Government is the result 
of man's efforts to create, maintain and improve society. 
Under our theory of government the people rule through 
representatives. For the purpose of national defence and 
to preserve unity among themselves, each of the forty- 
eight States surrendered a part of its sovereign powers 
to a central authority known as the Federal Government. 

Federal Powers. — Among the powers thus sur- 
rendered and now exclusively exercisable by the Federal 
Government are ; 

1. The power to declare war and establish peace. 

2. To maintain a navy. 

3. To provide a system of currency and to provide 
standards of weights and measures. 



NOTES 



NOTES 



MAN'S RIGHTS AND DUTIES 5 

4. To regulate commerce between foreign nations 
and among the several States. 

5. To enact bankruptcy laws. 

State Powers. — Conflict of Powers. — Such powers 
as have not been surrendered to the Federal Government 
are exercisable by the States. If a State power and a 
Federal power are in conflict, the Federal power is su- 
preme. Sometimes both State and National Govern- 
ments have concurrent powers and if a State has exer- 
cised its power in the premises it is supreme until the 
Federal Government chooses to exercise its own right, 
when, if there be a conflict, the Federal power prevails. 

Constitutions. — In order to prevent their represen- 
tatives from exercising dangerous powers of government, 
the people of the various States have adopted solemn 
instruments called constitutions, which are charters of 
liberty and of right. The Federal Government is like- 
wise founded upon and limited by an agreement made 
by the States and the people of the States. This instru- 
ment is called the Federal Constitution. 

Assumed Powers. — Early in our national history 
the Supreme Court of the United States assumed the 
power to declare an Act of Congress to be in conflict 
with the Federal Constitution. Following its lead every* 
State court has since assumed this power. Among stu- 
dents of government it would appear that in a land 
where the people rule there was no intention to submit 
the validity of their solemn legislative acts to review by 
a small group of men, who frequently — by a bare ma- 
jority — declare that what the people seek to do con- 
flicts with the fundamental law. 



6 BUSINESS LAW 

General Powers. — Government has certain inherent 
powers which are : 

1. Power to tax inhabitants for the support of gov- 
ernment. 

2. Power to compel a citizen to pay his just debts. 

3. Power to condemn private property for public 
use, compensating the owner therefor. 

4. Power to require citizens to bear arms in the 
national defence. 

5. An extraordinary power, called the police power, 
under authority of which a State maintains order and 
provides for the health, safety, morals and general wel- 
fare of its citizens. In the exercise of this, the most 
arbitrary of the powers of government, the private prop- 
erty of a citizen may be destroyed without compensation 
being made to him. The right of the State to enforce 
vaccination, to destroy gambling paraphernalia, to estab- 
lish quarantines, to destroy immoral literature and to 
dynamite buildings to prevent the spread of fire, are 
illustrations of the police power. 

The sole restriction upon the police power is that 
its exercise must be reasonable ; and the courts determine 
this question. 

Burdens of Citizenship. — As a result of the exer- 
cise of governmental powers, the citizen must bear the 
following obligations : 

1. Must pay taxes. 

2. Must obey laws, ordinances and orders of courts 
of justice. 

3. Must bear arms in defence of his country. 

4. Must so use his own property as not to injure 
another. 

5. Must so conduct himself as not to injure another. 



NOTES 



NOTES 



II 

CONTRACTS— IN GENERAL 

Among those rights and duties which a man takes 
upon himself voluntarily are those arising from his con- 
tracts, as stated in Lecture I. The underlying prin- 
ciple of all contracts is that the agreement is purely 
voluntary. If there is any compulsion, whereby one of 
the parties is forced to agree, then there is no real con- 
tract. Most of the transactions between men in every- 
day life are contracts or voluntary agreements. 

List of Ordinary Contracts. — The following is a 
partial list of such contract transactions: 

1. Sales, either of personal property or of real estate. 

2. Leases, either of personal property or of real es- 
tate. 

3. Transportation, — freight, passenger, express, 
mails and cartage. 

4. Employment. 

5. Insurance, — life, fire, marine and casualty. 

6. Labor and materials, building and repairs. 

7. Bills and notes, negotiable instruments. 

8. Loans. 

9. Guaranty and suretyship. 
10. Bailments and pledges. 

Definition of Contract. — A contract may be briefly 
defined as a voluntary agreement between two or more 
persons for the breach of which the law affords a rem- 

9 



10 



BUSINESS LAW 



edy. (The business man is not interested in a contract 
for the breach of which there is no remedy.) This 
remedy may be: 

1. Damages. 

2. Injunction. 

3. Specific performance. 

There are certain cases in which two of these rem- 
edies may be applied at the same time ; for instance, the 
court granting an injunction may also award damages. 

Definition of Damages.- — Damages is a sum of 
money which is awarded by the judgment of a court to 
the injured party to pay him for his loss. Damages 
ordinarily do not include profits or anything which is 
uncertain, but are awarded as compensation only. 

Definition of Injunction. — Injunction is an order 
of a court forbidding a man doing something which the 
court says is wrong. In a contract case a man may 
be forbidden to take advantage of his breach of the 
agreement. 

Definition of Specific Performance. — Specific per- 
formance is an order of a court compelling a man to 
carry out his agreement as he promised to do. This 
remedy in contract cases finds its chief application to 
agreements for the sale of real estate. 

Where Remedies May Be Sought. — Proceedings 
for damages are brought in a court of law, while those 
for injunction and specific performance are instituted in 
a court of equity. 



NOTES 11 



12 NOTES 



Ill 

CONTRACTS— CLASSIFIED 

Contracts are divided into two classes : 

1. Those under seal^ called specialties. 

2. All other contracts not under seal, whether writ- 
ten or oral, called parol contracts. 

A seal was a sacred thing at the common law, for 
it was used in place of a signature in ancient times 
when few men could write their names. In those days 
the seal on a paper or parchment was made with a signet 
(signature) ring impressed upon wax and as this ring 
was carried upon the person of the contractor, there was 
little likelihood of forgery. To-day in some States the 
seal has lost its formality, but in others it retains the 
same solemn character it had at common law. 

Kinds of Seals. — There are different kinds of seals 
as follows : 

1. Printed seal — (seal) (L. S.). 

2. Scroll seal, usually made with a pen. 

3. Sticker seal, which is attached to the paper. 

4. Wax wafer, impressed with a die or signet. 

5. Court, corporate and notarial seals usually im- 
pressed in the paper itself by a die. 

Sealed Contracts. — Contracts under seal include 
deeds, mortgages, mortgage-bonds, releases and judg- 
ment notes. The chief differences between contracts un- 
der seal and parol contracts will be treated under the 

13 



14 BUSINESS LAW 

topics " Consideration ^^ and " Statute of Limitations." 

Parol, Including Oral Contracts. — Parol contracts, 
as stated above, include written agreements not under 
seal as well as oral agreements. 

Necessity for Written Contracts. — An oral agree- 
ment in most cases is as binding as a written agreement 
(except where required to be in writing by the Statute 
of Frauds), but it is very difficult to prove its terms. 
The recollections of witnesses who have heard an oral 
agreement made usually prove faulty and a jury is 
obliged to guess what was really agreed upon. Conse- 
quently all important business contracts should be in 
writing but need not be under seal. 

Executory and Executed Contracts. — When a 
contract has been entered into but has not yet been ful- 
filled it is said to be executory ; while if completed it is 
said to be executed. Where one man has carried out his 
part of the contract, he is said to have executed 
his agreement, although the other contractor has 
not yet performed and although as to him the contract 
is executory. 

Signature of Illiterate or Disabled Person. — 
Where a man is unable to sign his name he may make 
his mark in the following manner, his name having been 
written in by the witness who should attest the mark 
by writing his name at the lower left-hand side of the 
instrument : 

Witness : His 

John (X) Smith. 
John Jones, Mark 

2213 Van Pelt Street. 



NOTES 15 



16 NOTES 



IV 

ESSENTIAL PARTS OF CONTRACTS 

CONSIDERATION— REAL AGREEMENT, ETC. 

Essentials of Contracts. — Contracts wlidch the law 
will enforce must contain the following essentials : 

1. Consideration. 

2. A real agreement, free from mistake, fraud and 
coercion. 

3. For a legal object. 

4. Sometimes in a legal form (see Statute of 
Frauds). 

5. Competent parties. 

Consideration. — 1. Consideration is anything of 
legal value which is exchanged in accordance with the 
terms of a contract. There are really two considerations, 
that which A receives from B and that which B receives 
from A. Consideration need have no actual value nor 
will a court inquire into its value except where a less 
sum is offered in payment of a greater sum. In this case 
the court will hold that the less sum cannot cancel the 
debt, so that if the debtor would protect himself he 
should have the creditor place a seal upon the receipt 
or else the debtor should deliver to the creditor some 
article in addition to the money. 

Implied Consideration. — Besides actual or real 
consideration spoken of above, there is consideration 
implied in law. This kind of consideration is indicated 

17 



18 BUSINESS LAW 

by a seal so that we say that sealed contracts need have 
no actual consideration. However, in most States, it 
is customary for a sealed contract to recite a real con- 
sideration. Thus we have in deeds a consideration 
of one dollar; and while the one dollar is merely 
nominal, yet it is a real consideration in addition to 
the seal on the deed. 

Real Agreement, Etc., Offer and Acceptance. — 
2. A real agreement^ free from mistake, fraud and 
coercion means one in which there has been an offer, 
clear and definite in its terms, which offer has been ac- 
cepted clearly and definitely by one who understands it. 
He who makes the offer is called the offeror and he 
who receives it is the offeree. When the offeree accepts 
in the manner outlined above, the contract is made; 
then we say the minds of the parties have met 
— they have agreed. 

Mistake. — A mutual mistake, that is, one which is 
made by both parties in ignorance of the true facts, 
will prevent the minds of the contractors from meeting 
and no contract will exist. But if the mistake is that 
of one of the contracting parties only and he had means 
of knowing the true facts there will be a binding agree- 
ment. Whether fraud was practised upon him or 
whether he had means of knowledge of which he did 
not avail himself are questions of fact for a jury. 
Wherever the mistake of one of the parties is previously 
known to the other who takes advantage of it, it 
amounts to fraud. 



NOTES 19 



20 NOTES 



ESSENTIAL PARTS OF CONTRACTS 

REAL AGREEMENT, ETC. (Continued) 

Fraud. — The agreement not only must be free from 
mistake but it must be made without fraud. For our 
purposes^ fraud may be described as a false statement 
or representation of an existing and material fact^ made 
by one of the parties with a full knowledge on his part 
of its falsity or else in reckless disregard of the truth, 
with the intention that the other party will rely upon 
it; and if he does rely upon it and suffers money 
loss thereby^ the fraud is complete. 

Elements of Fraud. — Thus there are four principal 
elements constituting frauds as follows: 

1. Deliberate or reckless misrepresentation of an 
existing and material fact. 

2. Made under circumstances that the other contract- 
ing party liad a right to rely upon it. 

3. The deception practised upon him was the reason 
the other party entered into the contract; if he had 
known the truth he would not have contracted. 

4. He who was misled has suffered a loss in money 
or property. 

In general^ any act or artifice which is intended to 
deceive or any concealment or suppression of a material 
fact is fraud. The test as to the materiality of a fact 
really constitutes the third element; in other words, 

21 



22 BUSINESS LAW 

would the contract have been entered into if it was 
known that the representation was false. 

Deliberate or Wanton Misrepresentation. — Please 
remember carefully that it makes no difference whether 
the one guilty of .fraud really knew the truth; it is 
sufficient if he neither knew nor cared — whether he de- 
liberately or wantonly misrepresented. 

" Let the Buyer Beware." — There is a general 
principal in law^ most frequently applied to the sale of 
goods^ called the doctrine of Caveat Emptor, which 
means " Let the buyer beware.^' This means that in 
any contract a man's eyes are his bargain and he must 
use all knowledge he can reasonably secure in order to 
prevent his co-contractor from cheating him. No person 
in business should believe all that he is told. If he has 
means of knowledge equal to the seller's means^ he can- 
not be heard afterwards to say that he relied upon what 
his co-contractor told him. 

Suppression of Truth is Fraud. — But if there are 
certain facts within the possession of one of the contract- 
ing parties who suppresses or misrepresents them and the 
other party has no means of knowing the truths then 
there can be no binding agreement. 

Reliance Upon Misrepresentation. — Of course, as 
said above, the misrepresentation must be the supposed 
fact upon which the other party relied. If he would 
have contracted anyway, he is bound by his agreement. 
The misrepresentation must be the inducement to con- 
tract. This is merely another way of saying that the 
misrepresentation must be of a material fact. 

To Whom False Statement is Made. — Tlie mis- 



NOTES 23 



II 

24 NOTES 



«l 



ESSENTIAL PARTS OF CONTRACTS 25 

representation need not have been made directly to the 
person who was intended to be misled; it may be made 
to a third party if the one defrauded had a right to 
rely upon it. 

Loss Must be Suffered. — It is hardly necessary 
to add that no man is really defrauded unless he has 
suffered a loss in money or property. 

Remedies for Fraud. — He who is defrauded has the 
following remedies: 

1. He may affirm the contract, that is, execute it and 
then sue for damages. He may sue either upon the 
original contract or in tort, called deceit. 

2. He may disaffirm the contract, that is, refuse to 
be bound by it and sue for damages in deceit. 

3. He may ask a court of equity to declare the 
contract void. 

4. He may successfully defend any action either 
at law or in equity which the other party may bring 
against him. 

5. He may sue at law to recover any property he 
has parted with before he discovered the fraud, and in a 
particularly aggravated case of this kind he may pros- 
ecute the guilty party for obtaining money or goods 
under false pretenses. 

Coercion, Duress and Undue Influence. — Of 
course the minds of the parties must meet voluntarily. 
If one of the parties is compelled to contract, the agree- 
ment will not bind him. If the compelling force is 
physical, it is called duress or coercion, while if it is 
a moral force it is called undue influence. (The best 
examples of undue influence are found in will cases 



26 BUSINESS LAW 

where beneficiaries have unduly influenced testators in 
making their wills.) 

Coercion Must be Real. — It should be clearly un- 
derstood that a mere threat — without a present appar- 
ent intention or ability to carry out the threat — 
is not coercion. 



NOTES 27 



28 NOTES 



VI 
ESSENTIAL PARTS OF CONTRACTS 
LEGALITY OF OBJECT 

Contracts should have legal objects, that is, what 
the parties are agreeing to do must be something which 
the law permits them to do. 

Illegal Objects Classified. — The best way to explain 
legal objects is to describe illegal objects. The latter 
may be classified into two divisions : 

1. Agreements whose object is forbidden by the laAV 
of the land. 

2. Agreements whose object is opposed to public 
policy — the general welfare of the community. 

Included in the first class are : 

a. Agreements for the commission of a crime. 

b. Agreements for the commission of a civil wrong 
or tort. 

c. Gambling or wagering agreements. 

d. Agreements made on Sunday. 

e. Agreements violating the laws against usury. 
Both a and h contracts named above are obviously 

void. 

Gambling Contracts. — c. The law of most States 
provides that wagering and gambling contracts^ being 
based upon chance or hazard, are void. These include 
bets on horse races, upon cards and upon stock-market 

29 



30 BUSINESS LAW 

transactions where there is no intention to deliver the 
stock. In all gambling contracts^, where the money re- 
mains in the hands of the stake-holder^ it may be 
recovered by either party; but if the contract has been 
completely executed by both parties^ the courts will 
not disturb the transaction. 

Prosecution of Gambling. — The District Attorney 
of any County is the proper person to enforce the laws 
against gambling, although in many cases prosecutions 
are begun by private persons. Gambling through the 
mails may be stopped by the Post Office Department. 

Petty Gambles. — The authorities sometimes ignore 
petty gambles or lotteries which have for their purpose 
the raising of money for religious or charitable objects. 

Swindles. — A distinction should be made between 
gambling contracts where each party has a chance to 
win and those which are swindles where the schemer 
alone can win. In these latter cases the court will not 
permit a person to be victimized but will give 
him relief according to the circumstances of each 
particular case. 

Contracts Made on Sunday. — d. Agreements made 
on Sunday are illegal because the law generally forbids 
labor on that day, and the making of secular contracts 
is considered " work and labor.'' However, an executory 
contract whose object is to benefit religion or charity 
will be enforced by the courts, even though made on 
Sunday. Again, contracts may be made on Sunday 
whose ol)ject is to preserve life, health or property. And 
finally, where a contract has not only been made but 
executed on Sunday, the courts will not interfere. 



NOTES 81 



32 NOTES 



ESSENTIAL PARTS OF CONTRACTS 33 

Usury. — e. In most States a legal rate of interest 
is established by statute. Interest paid in excess of this 
rate;, at the option of the borrower, may be 
recovered; or if unpaid, may be deducted from the 
amount of the debt. 

The law does not include pawn brokers and certain 
other contractors who may charge a higher rate. 

Contracts Against Public Policy. — 2. Agreements 
which are detrimental to the health, safety or morals of 
a community are void since they are against public pol- 
icy. Thus an agreement not to prosecute a crime is 
void; or an agreement in restraint of marriage or of 
marital relations is void. The common sense of the 
community is the best standard by which to measure 
the legality of these agreements. 

Contracts in Restraint of Trade. — The largest 
class of agreements which are opposed to public policy 
is one out of which great litigation has arisen, i. e,, 
agreements in restraint of trade. These will be explained 
in a subsequent lecture. 

Illegal Object Contracts in Court. — It is a general 
rule that the courts will not recognize an agreement 
whose proof discloses an illegal object; therefore money 
or property transferred under such an agreement usually 
cannot be recovered, but there are exceptions to the rule : 

Remedies. — 1. The court may compel the refund- 
ing to the less guilty party of the money paid by him 
under a contract having an illegal object where the 
parties are not equally to blame; for instance, he who 
frames a scheme is more guilty than he who succumbs 
to the temptation to profit by it. 



34 



BUSINESS LAW 



2. Where the illegal transaction is executory, either 
party may repent and invoke the same remedies he would 
have had if fraud had been practised upon him, except 
that he cannot sue in deceit. 

3. As said before in discussing gambling contracts, 
the repentant gambler may recover the money remaining 
in the hands of the stake-holder; and if the stake-holder 
pays it over to the winner after receiving notice not to 
do so from the loser, the stake-holder is himself liable 
for the amount he paid after he had received such notice. 



NOTES 35 



36 NOTES 



I 



VII 

ESSENTIAL PARTS OF CONTRACTS 

LEGAL FORM 

Statute of Frauds. — The Statute of Frauds is an 
English law adopted in practically every American 
state. It provides that certain contracts shall be in 
writing, otherwise the courts will not enforce them. 
The reason for the Statute is to prevent fraud and 
perjury in proving these agreements. 

Contracts Which Must Be Written. — The follow- 
ing list of contracts which are embraced by the Statute 
demonstrates the necessity for requiring them to be 
written : 

1. Contracts for the sale of real estate. 

2. Contracts for the letting of real estate for a period 
of three years and upwards. 

3. Contracts of surety and those where an executor 
or administrator agrees to be personally liable for the 
debt of his decedent. 

4. In some states^ contracts for the sale of merchan- 
dise in excess of a certain amount. In Pennsylvania, 
by Act of Assembly approved in May^ 1915, this amount 
was fixed at five hundred dollars and upwards. In New 
Jersey the amount is thirty dollars. 

5. Trusts created upon lands. 

Kind of Writing Required — Effect of Posses- 
sion. — The written agreement which the Statute re- 

37 



38 BUSINESS LAW 

quires need only be a memorandum but must be signed 
by the party sought to be charged. Thus a letter ac- 
knowledging the obligation is sufficient to satisfy the 
law. A^ain, a delivery or even a partial delivery of goods 
or of possession are sufficient to satisfy the Statute. 

Reasons for Statute of Frauds. — Transfers of real 
estate always having been guarded with jealous care, 
the law requires that agreements for that purpose shall 
be written. The other contracts included in the Act afford 
opportunity for such perjury that courts and juries 
would be vexed by problems which they could not solve 
if the law permitted oral testimony to be given. 



V 



NOTES 



40 NOTES 



VIII 

ESSENTIAL PARTS OF CONTRACTS 
COMPETENT PARTIES— FEME SOLE TRADERS 

Presumption of Competency — Incompetents. — 

The law presumes all persons able to contract, but 
while this is generally true, certain persons, because of 
their age, condition or position in life, may be readily 
excluded from the presumption. To be sure, they may 
make some contracts in order that they may live as 
human beings ; but to permit them to contract under the 
presumption would be to expose them to shrewd and 
designing persons who would take their property from 
them under the guise of " voluntary ^^ agreements. These 
persons, therefore, are said to be under disability and 
are : 

1. Infants. 

2. Persons unsound mentally. 

3. Drunkards. 

4. Alien enemies. 

5. Married women to a limited extent. 

As mentioned above, even these persons may make 
contracts for necessaries such as food, clothing, shelter, 
medical attendance and education. What is necessary 
for a particular person depends upon that person's sta- 
tion in life. What would be a luxury for A might be 
a necessity for B ; and if it were a necessity B would 
have to pay for it even though he was under a disability. 

41 



42 BUSINESS LAW 

Reasons for Law. — InfantS;, drunkards and per- 
sons mentally unsound are protected by law in this way 
because they are not able to help themselves. Alien 
enemies are included because to contract with them 
might very well amount to treason. Married women are 
protected by law against the persons who are their natu- 
ral guardians^ namely^ their husbands ; and those per- 
sons to whom their husbands are indebted. Conse- 
quently^ a married woman cannot be a surety for anyone 
and strictly speaking she cannot become bail to release 
her husband from prison. Nor can she mortgage her 
separate real estate without her husband's signature, 
while he can mortgage his separate property without 
her signature. Since neither husband nor wife can sell 
their separate real estate without both signatures, the 
wife's inability to do so can hardly be considered more 
of a disability than her husband labors under; and a 
man^s inability to convey his real estate free and dis- 
charged of his wife's dower is not considered to be a 
disability. 

Removal of Disability. — When the period of disa- 
bility has ended any of the persons classified above may 
affirm their contracts made while they were incompetent. 
Any act showing an intention to be bound by the con- 
tract will affirm it. If no affirmation is ever made 
the agreement remains unenforcible. 

Disability Sometimes an Illegal Defense. — If a 
person under a disability tries to retain goods and yet 
evade paying for them under chiim of disability, the 
creditor may recover his goods either by civil or criminal 
process. 



NOTES 43 



44 



NOTES 



ESSENTIAL PARTS OF CONTRACTS 45 

FEME SOLE TRADERS 

Reason for Law. — A feme sole trader is a married 
woman who has engaged in business or trade in order to 
support herself because her husband has gone to sea^ 
or because he. is a drunkard or profligate^ or because 
for any other reason he has deserted her and refused 
or neglected to support her. 

Reason for Proceedings Thereunder. — To protect 
creditors^ the married woman must have been adjudged 
a feme sole trader upon petition to the Court of the 
County wherein she is conducting her business or trade, 
for although she can claim some of the benefits of the 
law without such formality^ her creditors in such case 
cannot levy upon her property for the payment of debts 
contracted by her in the course of trade. 

Effect of Decree. — The law further provides that 
during the lifetime of her husband, a married woman 
can sue and be sued on contracts made for her busi- 
ness or trade, and (when she has been adjudged a feme 
sole trader by the court) her creditors can levy upon her 
individual property for settlement of their claims 
against her. Lastly, it is provided that she shall have 
sole power to dispose of her property, both real and 
personal, either by deed or by will ; and in case she dies 
intestate, her property shall go to her next of kin as 
though her husband were already dead. 



IX 

DISCHARGE OF CONTRACTS 

A CONTRACT is discharged when the parties to it are 
freed entirely from their rights and liabilities under it. 
Contracts may be discharged in the following ways: 

1. By mutual agreement. 

2. By performance of all obligations by all parties 
to the contract. 

3. By impossibility of performance. 

4. By breach of one of the parties to the contract. 

Mutual Agreement. — 1. Since the parties to a con- 
tract voluntarily enter into it^ so they may mutually 
agree to excuse each other from doing the things agreed 
upon. There are three ways in which contracts are dis- 
charged under this heading: 

a. By waiver^ cancellation or rescission. 

h. By substituted agreement. 

c. By the happening of some condition expressed or 
implied in the original contract. 

a. Where there is an express agreement by the 
I^arties that the contract shall no longer bind either one, 
it is said that such contract is discharged by waiver, 
cancellation or rescission. It should be carefully noted 
that in order to discharge a contract by any of these 
methods, there must bo, with certain exceptions, a 
consideration given to support such cancellation. The 
exceptions are where the contract is wholly executory, that 
is, where nothing has been done by either party under 
46 



NOTES 47 



48 NOTES 



DISCHARGE OF CONTRACTS 49 

the terms of the contract; where the instrument can- 
celling the agreement is under seal; and where a nego- 
tiable instrument which is the subject of the contract 
has been destroyed or surrendered for the purpose of 
discharging the debt. 

1). Where the existing contract is discharged by the 
substitution of another agreement, the substituted agree- 
ment may consist of a new contract expressly substi- 
tuted for the old one ; or of a contract inconsistent with 
the old one ; or of a new contract made up of new terms 
and so much of the original as remains unchanged; or 
of a contract in which a new party is substituted for 
one of the original parties. 

c. By condition in the contract. A contract may be 
discharged by the happening of a certain event agreed 
upon by the parties ; or where one of the parties has the 
option to determine the contract at will. 

Performance. — 2. Where both parties have per- 
formed all obligations imposed by the contract, it is 
then discharged. On the other hand, full performance 
of his obligation by one of the parties discharges him 
alone, but does not discharge the other party; and the 
latter must still perform his obligation or else be liable 
in damages therefor ; and in some cases he may be made 
to perform specifically where there is no adequate rem- 
edy at law. W^hether all the terms have been fulfilled 
is a question to be determined upon the facts of each 
case. 

Substantial Performance. — ITote that exact per- 
formance of the contract by the parties is not abso- 
lutely necessary for the discharge of it; in some cases 
the contract can be discharged by what is termed sub- 



50 BUSINESS LAW 

stantial performance. But here the contractor must 
deduct from the original amount of his bill whatever 
sum of money such variation from exact performance is 
reasonably worth to the other party. 

Offer to Perform as Prerequisite to Damages. — 
Ordinarily the honest contractor needs no guide for the 
performance of his agreements. But sometimes, where 
the other party refuses to carry out his part of the 
agreement, and this refusal is known to the honest con- 
tractor before the time for his own performance has 
arrived^ a tender or offer of performance must be made 
by the latter in order to prepare a case for court. How 
this tender of performance should be made is a question 
for a lawyer. 

Payment. — Frequently the performance contem- 
plated under a contract is payment. This may consist 
of currency — either coins or jjaper money; the personal 
paper — note^, check or draft — of the debtor; or the per- 
sonal paper of a third party. 

Legal Tender. — Usually the creditor may select the 
medium which he is willing to accept in payment. How- 
ever^ the Federal Government by the Legal Tender Act 
has specified certain media which the creditor must 
accept. These media are known as legal tender and are 
defined by the Act as follows: 

1. Gold^ and silver dollars to any amount. 

2. United States and Treasury notes to any amount. 

3. Silver fractional currency to an amount not ex- 
ceeding ten dollars. 

4. Nickel and copper coins to an amount not ex- 
ceeding twenty-five cents. 

Gold and silver certificates and national bank notes, 



NOTES 51 



52 NOTES 



DISCHARGE OF CONTRACTS 53 

while not legal tender under the Act^ generally have 
been received as such since the resumption of specie pay- 
ments. Federal Reserve Notes are receivable for debts 
due the United States and are legal tender among mem- 
ber banks. The various kinds of paper money issued by 
the Government and by the national banks bear printed 
conditions limiting their use when payments are made 
to the Government itself. 

Payment Not in Currency. — Except as above set 
forth the creditor may select his own medium of pay- 
ment. If he accepts the personal paper of the debtor 
there is no real payment until that paper has been 
cashed or turned into money of the United States. But 
if the creditor accepts the personal paper of a third 
person^ by indorsement of his debtor^ it is payment or 
release of the original debt^ even though the instrument 
itself is not paid when presented. 

Debtor's Duty to Offer Payment. — It is the duty 
of the debtor to seek out his creditor and offer or tender 
payment at the proper time. 

Refusal of a Receipt. — The creditor need not give 
a receipt unless a statute or the contract itself so pro- 
vides. It is customary, however, for the creditor to give 
a receipt which may be used later as proof of payment. 
Eefusal to give a receipt is not ground for refusal to 
pay the debt, however, except as stated above. 

Refusal of Offer to Pay. — Where the debtor has 
made a legal tender or offer of payment which is refused 
by the creditor, the latter cannot afterwards recover 
more money than was due him upon the day when the 
tender was made ; but the debt is still due. 



DISCHARGE OF CONTRACTS (CONTINUED) 

Impossibility of Performance. — 3. Sometimes a 
contract is discharged because it is impossible to per- 
form it. The following are causes which may render 
performance impossible in some cases : 

a. Act of God. 

b. Operation of law. 

Acts of God. — <i. There are various definitions oE 
an act of God^ but for our purposes an act of God 
may be said to be an inevitable accident produced by 
the elemental forces of nature which human judgment 
could not have foreseen nor human skill prevented. The 
essential thing to be remembered is that the act which 
has prevented performance of the duties imposed by 
contract must be an act of God^ usually making itself 
felt through some violent force of nature ; and not some 
impossibility caused by man. Some manifestations of 
nature that have been held to be acts of God are fires 
caused by lightning; unusual snow storms preventing 
transj)ortation of commodities and passengers; unusual 
rains^ floods and hurricanes. 

Insurer's Contract. — However^ it should be remem- 
bered by the student that if a person, by his contract, 
imposes an absolute liability upon himself to do a cer- 
tain thing, without qualification, he is bound to do it 
or answer for his breach, no matter what may be the 
ciiuse of the impossibility; and this is true even where 
54 



NOTES 55 



56 NOTES 



DISCHARGE OF CONTRACTS 57 

he has been prevented by an act of God from performing 
bis contract. 

Operation of Law. — I). A contract is discharged if 
the law makes it impossible of performance. But if, 
after performance of his contract-duty by one of the 
parties, the performance of the other^ who insists upon 
retaining the benefits which he has obtained under the 
contract, is forbidden by law, then a court will require 
that the latter pay an equivalent in money to compen- 
sate him who has performed. 

Impossibility of performance by act of the parties 
is practically '^ breach *' and will be treated under that 
topic. 

Breach. — -i. A contract is discharged by breach 
when one of the parties to it breaks an obligation which 
it imposes upon him. This may be done in any one 
of the following ways : 

a. He may disclaim all liability under it. 

b. He may render it impossible to perform the 
contract. 

c. He may partially or totally fail to do what he 
has undertaken. 

Unfair Bargain No Legal Basis for Breach. — ^ 
a. A business man should know that once lie has en- 
tered into a valid contract with another he cannot absolve 
himself from liability under it by a mere refusal to per- 
form the obligations it imposes upon him. To do that 
he must first obtain the consent of the other party. 
Thus one who contracts in a bona fide way, merely be- 
cause he has received the worst of the bargain, cannot 
decide that he will not go on with it and expect to be 



58 BUSINESS LAW 

freed from liability. This is a breach of contract and 
the injured party can recover damages for any loss he 
may sustain. However^ if one does so disclaim liability, 
the contract is discharged by breach and the other party 
can immediately sue for the damages he suffers. 

Impossibility of Performance Caused by Breach. 

b. Where one of the parties by his acts or omissions 
makes performance of the contract impossible^ it is im- 
mediately discharged by breach and the injured party 
can sue for damages. Further^ it should be carefully 
noted that the act or omission does not have to be ma- 
licious. Thus^ where X contracted with a partnership to 
serve as its agent for a term of five years and the part- 
nership terminated at the end of two years, since per- 
formance of the contract was rendered impossible bv 
reason of dissolving the partnership, the agent was 
allowed to recover his salary for the full term of five 
years. Here there is no malice shown — only an apparent 
bona fide act of the partnership — and yet the partners 
were held liable for the damages. 

Dependent and Independent Promises. — c. As a 
general rule it may be said that when one of the parties 
fails to perform any of the terms of the contract, the 
contract is broken just as soon as this occurs. There 
is a certain limitation to this in that the mutual prom- 
ises must be conditional or dependent upon each other. 
Thus there is no discharge of a contract upon simple 
non-performance of independent contracts or promises 
even though these promises are made at the same time. 
In other words, the old saying that " two wrongs will 
never make a right ^' holds good. The fact that one 



NOTES 59 



60 NOTES 



DISCHARGE OF CONTRACTS 61 

of the parties has refused to do what he has promised 
to do does not permit the injured party to refuse per- 
formance of his own agreement; at least the injured 
party must make a tender of performance^ as stated 
before. 

Partial or Total Failure to Perform. — Partial 
failure of performance is the commonest kind of breach. 
Few of us have the courage to break our agreements out- 
right; but we make a half-hearted effort which results 
in partial failure of performance — sometimes complete 
failure, too. Poor workmanship, or an unlawful desire 
to save money or trouble, are the chief causes of faulty 
performance, which amounts to partial failure. 



XI 

JOINT AND JOINT AND SEVERAL 
CONTRACTS 

CONTRACTS FOR THE BENEFIT OF THIRD 
PERSONS 

Definitions. — The word^^ joint '' as applied to con- 
tracts means that several persons liave undertaken to 
perform together, each agreeing to do part only ; and the 
word " several ^' as applied to contracts means that sev- 
eral persons have agreed among themselves that each 
shall complete performance by himself if necessary. 
Therefore, a joint contract may be briefly defined as one 
in which two or more parties on one side have agreed 
jointly with one or more persons on the other side, each 
party to do only his own particular share of the per- 
formance. 

On the other hand, a joint and several contract is 
one where there are two or more parties on one side, 
each of whom may be required to complete perform- 
ance himself, irrespective of his own separate agreement 
with his fellow-obligors. 

Disadvantages of Joint Contracts. — The practical 
objection to a joint obligation is that he who may de- 
mand performance must first satisfy a number of per- 
sons who in return need only yield him a share of 
performance. Thus in a suit on a joint contract, the 
joint-contractors must be joined as defendants. If one 
of the joint-obligors pays the amount of the judgment 

62 



NOTES 63 



64 NOTES 



4 



JOINT AjND several CONTRACTS 65 

taken against ali^, he may recover from his fellow- 
obligors the amount of their respective shares. This is 
called the right of contribution. If one of the joint- 
obligors is released from liability the others are also 
released^ except where the release was given in consid- 
eration of the performance of the joint-obligor's propor- 
tionate share. 

Joint and Several Contracts. — A joint and several 
contract is not so intricate. One of the obligors^ being 
himself liable for the whole performance^, may be se- 
lected as the defendant ; and he will be liable to pay the 
entire amount of the judgment. If he has any right 
of contribution against his co-obligors it does not depend 
upon the joint and several contract, but upon some col- 
lateral agreement. Nor does a release of one of the 
obligors discharge the obligation of the others unless 
such release would take from them the defense they 
would otherwise have had. Furthermore, the plaintiff 
may continue to sue each obligor individually until he 
has received full satisfaction. A joint and several obli- 
gation is a contract benefiting the plaintiff, while a 
joint contract holds more advantages for a defendant. 

Procedure Simplified. — By various statutes some 
of the distinctions between joint and joint and several 
contracts relating to procedure have been abolished. An 
instance of this effort to simplify the law will be noticed 
later in the lectures on Bills and Notes. 

CONTRACTS FOR THE BENEFIT OF THIRD 
PERSONS 

Only Parties May Sue Upon a Contract — Excep- 
tions. — At common law the rule was that no one but a 



66 BUSINESS LAW 

party to a contract had any right to sue upon it. This 
is the rule followed to-day, but it has two well-recog- 
nized exceptions : 

1. Where a person has agreed to pay another's debt 
and has received the funds or property wherewith to 
pay, that is, where there has been a trust relationship 
created; and 

2. Where a partnership or other business has been 
purchased by one who has agreed to pay the firm debts 
and who has received the assets of the business where- 
with to pay. 

In either case the beneficiary or creditor may sue 
him who holds the fund, although the former is not a 
party to the contract made for his benefit. 



NOTES 67 



68 NOTES 



XII 
SALES OF PERSONAL PROPERTY 

Sales are Special Contracts. — The law pertaining 
to sales of goods is a brancb of the law of contracts; 
consequently^ all the rules of law relating to contracts 
apply equally to sales of goods. 

Vendor and Vendee. — He who sells the goods is 
known as the seller or vendor and it is his duty to 
deliver the goods in accordance with the terms of the 
contract. He who buys the goods is called the buyer 
or vendee and it is his duty to accept the goods and 
to pay the agreed consideration or price for them. The 
price may be expressly agreed upon or be fixed by the 
course of business or may be a reasonable one under all 
the circumstances. 

Difference Between Sales and Contracts to Sell. — 
It is important to observe the distinction between 
sales and contracts of sale. Thus a sale of goods is the 
transfer thereof in consideration of an agreed price; 
whereas a contract to sell goods is an executory agree- 
ment. In other words^ the sale is the consummation of 
the contract to sell. In determining whether there has 
been a sale or only a contract of sale^ delivery of the 
goods plays an important part. 

Method to Determine Difference. — Where the 
goods have actually been delivered to the vendee with 
intent to pass title to him, the transaction is a sale ; but 
where delivery has been made to an agent, such as a car- 

69 



70 BUSINESS LAW 

rier, there may or may not be a sale, depending upon 
the terms of the contract, usages of trade or other facts 
which will be noted later on. 

Installment Leases. — In some states chattel mort- 
gages — mortgages upon personal property — are imprac- 
ticable; instead, installment leases are used. Under 
this type of contract, A leases to B an article of per- 
sonal property, such as a sewing machine, B to pay 
rent therefor until the installments of rent amount to 
a certain sum, when A becomes bound to deliver title 
or ownership of the article to B. But until the last 
installment of rent is paid, A remains the owner of 
the article. 

Potential Goods May be Sold. — Since the term 
" personal property ^^ includes intangible as well as tan- 
gible property, both are subject to . sale ; nor need the 
goods actually exist at the time the contract to sell 
them is made ; thus, goods which have a potential exist- 
ence, e, g., crops which a farmer expects to reap at the 
next harvest, may be sold. 

When Title Passes. — The most important consid- 
eration in sales is when title to goods sold passes from 
the vendor to the vendee; for ownership of the goods 
carries with it two of the most important attributes of 
property, namely, risk of loss and the right of resale. 
The question of passage of title is decided by reference 
to the intention of the parties, and to understand their 
intention we must examine their conduct, the terms 
of the contract, usages of trade and the particular 
circumstances of the case. 

Fungible Goods. — There is a general rule that uo 
title can pass to the buyer until the goods have been 



NOTES 71 



72 NOTES 



SALES OF PERSONAL PROPERTY 



73 



ascertained;, but there is an exception in the case of 
fungible goods. Wheat, liquids or other goods, any com- 
ponent part of which is the same as the general mass, 
are laiown as fungible goods ; and any definite number, 
weight or measure of these goods in mass may be sold 
and title thereto pass to the vendee even though the 
part sold is not separated from the general mass. The 
vendee becomes an owner in common of the mass. 

There are a number of rules relating to this ques- 
tion of passage of title, which are useful in determin- 
ing the intention of the parties, but they require too 
much space for discussion here. 

Kinds of Sales — Definitions. — There are various 
kinds of sales and contracts of sale as follows: 

1. Absolute. 

2. Conditional. 

3. For cash. 

4. On credit. 

5. By sample. 

6. By description. 

7. At a valuation. 

1. An absolute sale or contract to sell is one which 
is free of all conditions. 

2. A conditional sale or contract to sell is one whose 
consummation depends upon a contingency. 

3. A cash sale or contract to sell is one in which 
delivery of the goods and payment of the price are 
simultaneous acts. 

4. A credit sale is where the goods are delivered and 
title passes but payment of the price is deferred. 

5. A contract to sell by sample is where it is agreed 
that a larger quantity of goods shall be delivered whose 



74 BUSINESS LAW 

quality shall approximate that of the sample shown when 
the contract of sale was made. 

6. A contract to sell by description is similar to a 
sale by sample except that no sample is exhibited, the 
sale being made from a catalog, etc. 

7. A contract to sell or a sale of goods may be made 
upon prices or terms fixed by a third party. This is 
called a sale at a valuation. 



J 



NOTES 75 



76 NOTES 



XIII 

SALES OT PERSONAL PROPERTY (CON- 
TINUED) 

CONDITIONS AND WARRANTIES— REMEDIES 

Difference Between Conditions and Warranties. 

— At common law there was a distinction observed be- 
tween conditions and warranties in that the buyer might 
reject goods sold upon condition but was obliged to ac- 
cept them if sold upon a warranty^ on the theory that 
while a condition was a part of the sales transaction^ a 
warrant)' was merely a collateral agreement ; but the law 
now appears to give a buyer the right to treat warranties 
as conditions and to return goods which have been guar- 
anteed or warranted under collateral agreements. 

How to Determine Difference. — Conditions of sale 
are usually expressed or arise through the custom of the 
trade. Warranties may be both expressed and implied. 
If they are expressed they are what we know as guar- 
antees — ^^ these goods are fast black and will not shrink.^^ 
But there are various implied warranties such as war- 
ranties of title and that goods will equal description 
and sample. 

Place of Delivery of Goods. — If the contract of 
sale is silent upon the subject and there is no usage of 
trade to the contrary the place of delivery of the goods 
sold is the seller's place of business^ unless to the knowl- 
edge of the parties contracting, the goods are at some 
other place ; in the latter case this other place is the place 
of delivery. If the goods at the time of the sale are in 

77 



78 BUSINESS LAW 

the possession of a third person^ the seller must procure 
acceptance of the contract of sale by such third person. 

Right to Examine Goods. — When goods are deliv- 
ered to the vendee which he has not previously examined 
he must be given a reasonable opportunity to examine 
them. If he fails to communicate to the seller his ac- 
ceptance of the goods^ any act of the buyer which is 
inconsistent with the ownership of the seller amounts 
to acceptance ; thus keeping them an unreasonable length 
of time or using them or part of them may be construed 
as an acceptance of them. 

REMEDIES OF THE PARTIES 

A. Of the seller: 

As in all contract cases the law provides a remedy 
for breach. Thus if the seller is not paid his price 
he may: 

1. Hold the goods till the buyer pays the price. This 
is known as a seller's lien. 

2. Ee-sell the goods and recover from the buyer 
damages for any loss occasioned by the breach. 

3. Rescind the sale and resume property or owner- 
ship in the goods and may then recover damages from 
the buyer for any loss occasioned by the breach. 

4. If the buyer becomes insolvent the seller may 
stop the goods in transit; that is to say, even though 
title to the goods has passed to the buyer the seller may 
order the carrier not to deliver them to the buyer. 

5. Where title has passed to the buyer the seller 
may sue for the price; or for such damages as he sus- 
tains by reason of the non-acceptance of the goods. 

B. Of the Buyer: 



NOTES 



79 



80 NOTES 



SALES OF PERSONAL PROPERTY 81 

1. If the title to the goods has passed to the buyer 
he may bring suit against the seller for wrongfully with- 
holding the goods. The action of replevin is the usual 
remedy adopted. 

2. He may bring action for damages for failure to 
deliver the goods, or 

3. If the goods are of a special nature he may file 
a bill in equity asking for specific performance upon such 
terms as the court may decree. 

4. Where there is a breach of warranty he may at 
his option sue for damages, retaining the goods ; or may 
return the goods as though the warranty were a con- 
dition. 

Measure of Damages. — In all cases where there is 
a suit for damages by either seller or buyer the damages 
are measured by the difference between the agreed 
price and the market price; but if there is no market 
price because of the special nature of the goods the seller 
may recover the agreed price and the buyer may bring 
replevin or ask for specific performance. Sometimes 
special damages, which naturally result from the breach, 
are added, such as freight and storage charges or loss 
occasioned by spoiling or deterioration of the goods. 

Market Price. — The market price spoken of above 
means that price which obtained in the open market at 
the time when the goods were to be delivered. 

Creditors of the Parties. — There are a great many 
special rules relating to the rights of creditors of the 
buyer and of the seller, but since creditors' rights cannot 
rise higher than those of the owner of the goods a deter- 
mination of the question of ownership will determine 
the risfhts of creditors. 



XIV 

ASSIGNMENTS 

COMPARISON BETWEEN ASSIGNMENT AND 
NEGOTIATION 

Intangible Property — Choses. — In previous lec- 
tureS;, sales or transfers of personal property — tangible 
property — have been discussed; in future lectures sales 
or transfers of real property — lands and buildings — will 
be discussed. In addition to tangible personal property 
we have rights of property which cannot be sensed^ that 
is to say, which are intangible. Among these intangible 
rights are those called '' choses in action.^^ When they 
are being enjoyed, they are called choses in possession. 

Definition of Chose. — A chose in action may be 
briefly defined as that right of personal property v/hich 
one person may assert against another and which, al- 
though intangible, has the attributes of other personal 
property in that it may be bought and sold. A chose 
in action may be evidenced in writing, or it may be evi- 
denced by facts susceptible of proof. 

Methods of Transferring Chose. — Choses in action 
may be transferred in one of two ways: 

1. By assignment. 

2. By negotiation. 

And which method of transfer or sale shall be used 
is a question to be decided by reference to the evidence 
of the chose. Thus if the evidence is a writing and that 
writing complies with the requirements of the law of 
negotiable instruments, the chose is transferable by 
negotiation. 
82 



NOTES 83 



84 NOTES 



ASSIGNMENTS 85 

Transfer by Assignment. — An assignment of a 
chose, like the negotiation of it, is the transfer of the 
rights of ownership from one person called the assignor 
to another called the assignee. The rights of a con- 
tractor are really choses in action and the law of as- 
signment is peculiarly applicable to the transfer of con- 
tract choses. Contract rights are generally assignable 
except those which involve personal credit, skill or such 
relationship of trust and confidence as would render the 
substitution of another highly undesirable to the orig- 
inal contractor. But contract liabilities are unassign- 
able without the consent of the obligee. 

Form of Assignment. — No special form of assign- 
ment is necessary, though it is usual to put assignments 
in writing and sometimes they are sealed and witnessed 
as well. 

Since an assignment is in itself a contract, it fol- 
lows that it must contain all of the elements of contracts 
described in previous lectures, such as consideration, etc. 

Caution. — He who is about to purchase by assign- 
ment should be sure to see the evidence of the right 
which is to be transferred to him ; and immediately upon 
consummation of the transfer he (the assignee) should 
notify the principal debtor that he has bought the chose. 
He may also secure from the latter a declaration of 
no set-oif. 

Effect of Assignment. — ^The effect of an assignment 
is peculiar in the following ways : 

The assignor who attempts by his transfer to wipe 
out his own liability cannot succeed in doing so, that is 
to say, if his assignee fails to perform, the assignor must 
do so. The only way he can escape such liability is to 



86 BUSINESS LAW 

secure a release from his co-contractor^ who thereby 
accepts the assignee to the exclusion of the assignor. 
This in law is known as a novation. 

Difference in Result of Assignment and Negotia- 
tion. — The assignee is precisely in the same position 
as his assignor. It is said that he " stands in the latter^s 
shoes.^^ Consequently any defense or set-off which was 
good against the assignor would also be good against 
the assignee; and this is true irrespective of the good 
faith or lack of knowledge of the assignee. Please note 
carefully that this is the most important difference 
between assignment and negotiation. 

•Caution. — It is well for the assignee to secure what- 
ever evidence of the chose that exists. Thus if there is 
a writing the assignment should be noted on the back 
or attached thereto and then all the papers should be 
transferred to the assignee. This is similar to delivery 
in negotiation. 

Assignment by Operation of Law. — So far we 
have considered] assignment as a transfer by act of the 
par'ties. Sometimes property rights are transferred by 
operation of law^ as by death and bankruptcy. Thus 
when a man dies his outstanding contracts^ unless they 
are for personal services, are transferred to his executor 
or administrator ; and in bankruptcy the choses in action 
of the debtor are transferred to his trustee for the benefit 
of his creditors. 

COMPARISON BETWEEN ASSIGNMENT AND 
NEGOTIATION 

The two may be compared in three ways : 
1. Their purpose. 



NOTES 87 



88 NOTES 



ASSIGNMENTS 89 

2. Their method. 

3. Their effect. 

Purpose of Transfers. — The purpose of both is the 
same, namely, to transfer a right or chose to another, 
usually with the ultimate purpose of paying a debt. 

Method of Transfers. — The method of assignment 
was explained above, usually consisting of a separate 
contract, sometimes sealed and witnessed; negotiation, 
on the contrary, consists of delivery of the chose in the 
form of a bill or note, if it is a bearer instrument; or 
by first indorsing it (writing one's name on the back), 
if it is an order instrument, and then delivering it to 
the transferee. The reason why the law permits this 
easy method of transfer is because negotiable instru- 
ments are treated legally and commercially as the 
equivalents of paper money; and the truth of this 
statement is proved by the fact that if a negotiable 
instrument loses its character as such^ it also loses its 
method of transfer. In other words, when it can be 
no longer transferred by indorsement and delivery or 
by delivery alone, it may be transferred by assignment. 

Result of Transfers. — But, as said before, the chief 
difference between assignment and negotiation is that 
while the assignee can never receive a better right than 
his assignor had, his good faith being immaterial, the 
holder by negotiation, if he took in good faith as defined 
in Section 52 of the Uniform Negotiable Instruments 
Act, may take a better title and more rights than his 
indorser had. Under the Section of the Act referred to, 
the transferee may be a holder in due course, not subject 
to any defenses existing between the original parties 
except forgery. 



XV 

BILLS AND NOTES 

ESSENTIALS OF NEGOTIABLE INSTRUMENTS 
FORM OF THE CONTRACT EXPLAINED 

The best way to learn about bills and notes^ or ne- 
gotiable instruments as they are sometimes called, is 
to read the Uniform Negotiable Instruments Act in 
which the whole law upon the subject is codified. But 
since time forbids such an exhaustive study of the law, 
the following analysis of the Act has been prepared. 

Essentials of Negotiable Instruments. — An in- 
strument to be negotiable must conform to the following 
requirements : 

1. It must be in writing and signed by the maker 
or drawer. 

2. Must contain an unconditional promise or order 
to pay a sum certain in money. 

3. Must be payable on demand or at a fixed or de- 
terminable future time. 

4. Must be payable to order or to bearer, and, 

5. Where the instrument is addressed to a drawee, 
he must be named or otherwise indicated therein with 
reasonable certainty. 

Explanations of the Essentials. — A sum certain 
is such although it is to be paid with interest, in install- 
ments, with exchange, with costs of collection, or with 
an attorney's fee. 

There must not be an order or promise to do axiy- 
90 



NOTES 91 



92 NOTES 



l| 



BILLS AND NOTES 93 

thing in addition to paying money; but the following 
collateral agreements do not affect negotiability : 

1. Authorizing the sale of collateral security. 

2. Confessing judgment. 

3. Waiving the benefits of the exemption laws. 

The negotiable character of the instrument is not 
affected by the presence of a seal, by omitting the date, 
by omitting the words " without defalcation, value re- 
ceived/' by omitting the name of the place where drawn 
or payable, or by specifying the particular kind of 
money with which payment is to be made. 

Who May be Payee. — The instrument may be 
made payable to anybody, even though his name already 
appears on the instrument in another capacity; to one 
under a disability ; or to the holder of an office for the 
time being, such as '' treasurer '^ or " prothonotary.'^ 

When Instrument is Payable to Bearer. — The in- 
strument is payable to bearer when so stated on its face 
or when the last indorsement is in blank (a blank 
indorsement is the signature only of the transferror.) 

Authority to Complete Instrument. — Where the 
instrument is incomplete, the holder may complete it 
if he acts strictly in compliance with his authority, 
express or implied. If he abuses his authority he de- 
rives no advantage therefrom if he holds the instrument 
at maturity ; but in the hands of a holder in due course 
the instrument is as good as though it had been properly 
completed. !No one, however, may complete an instru- 
ment by adding another's signature. 

Rules of Construction in Cases of Ambiguity. — 
When the language of the instrument is ambiguous, these 
rules of construction are followed: 



94 BUSINESS LAW 

1. Words control figures^ but if the words are illegi- 
ble, figures control. 

2. Writing controls printing. 

3. An instrument reading " I promise ^' signed by 
two or more persons^ is a joint and several obligation. 

4. One who signs a trade name makes himself liable 
as though he had signed his own name. 

Signature by Agent. — The signature of anyone as 
maker, drawer, acceptor and indorser may be made by 
an agent. The right of the agent to sign his principaFs 
name is usually derived from a power of attorney, 
although any form of authority may be used. While 
no particular form of signature is necessary it should 
disclose the name of the principal; otherwise the agent 
is individually liable. 

Incompetents Not Liable as Indorsers. — Those 
under a disability may transfer title to a negotiable 
instrument, but are not liable thereunder. 

Forgery. — Forgery of the maker's or drawer's name 
is an absolute defense to all parties on the instrument 
itself, for in contemplation of law, such an instrument 
never existed. Those who have become parties to it 
subsequently and in good faith have their right against 
each other as it existed before they took the alleged in- 
strument; in other words the instrument is counterfeit 
money. If an indorser's name is forged, no right to 
retain the instrument or to enforce payment thereof 
against any party thereto can be acquired thereon under 
such signature, unless the party defendant is precluded 
from setting up the forgery by some act of liis own. 

Consideration. — Legal value or consideration neces- 
sary to support a negotiable contract means the same as 



NOTES 95 



96 NOTES 



BILLS AND NOTES 97 

those terms mean in ordinary non-negotiable contracts. 
Absence or failure of consideration is a defense against 
any person not a holder in due course, and partial 
failure of consideration is a defense pro tanto (which 
means for so much). 

Accommodation Party. — An accommodation party is 
one who has signed the instrument as maker^ drawer, 
acceptor or indorser without receiving value therefor and 
for the |)urpose of lending his name and credit- to some 
other person. He is liable to the holder for value even 
though the latter knew when he took the instrument 
that the former was only an accommodation party. The 
fact that he is an accommodation party is, however, 
a defense against the accommodated party. 



XYI 

BILLS AND NOTES (CONTINUED) 
EFFECT OF NEGOTIATION— INDORSEMENTS 

Results of Negotiation. — In considering the act of 
negotiation the student should bear in mind that three 
objects are effected as follows: 

a. Title to the instrument is transferred. 

6. The law imposes upon the transferror (indorser) 
a duty to pay the instrument unless he has himself, 
by a peculiar kind of indorsement called a qualified 
indorsement, eliminated this liability. 

c. A receipt may be delivered. 

Kinds of Indorsements. — The following are the 
principal kinds of indorsements : 

Blank. — 1. The name only of the transferror, called 
blank indorsement. 

Special. — 2. The name of the transferee as well as 
that of the transferror, called special indorsement, be- 
cause it specifies the payee. 

Restrictive. — 3. An indorsement which prohibits 
further negotiation of the instrument or constitutes the 
indorsee an agent or trustee, is called a restrictive in- 
dorsement. But the mere absence of words of negotiation 
does not make the indorsement restrictive. Thus ^^ Pay 
to John Brown (signed) W. Smith'' is not restrictive; 
whereas " Pay to John Brown only (signed) W. Smith '' 
is restrictive. 

Qualified. — 4. Qualified indorsement, effected by 

98 



NOTES 99 



100 NOTES 






BILLS AND NOTES 101 

adding to the mdorsement the words " without re- 
course/' while passing title to the instrument^ eliminates 
the indorser's liability. Tliis kind of indorsement is 
valuable for agents or those persons who wish to indorse 
an instrument without incurring liability thereon be- 
cause they do not receive any benefit from it. 

Conditional. — 5. The conditional indorsement 
means a transfer upon condition. It is well to remember 
that while the contract upon its face must . be uncon- 
ditional in order to be negotiable, yet the transfer of 
it may be upon any condition which the holder seeks 
to impose. The following illustration will make the 
matter clear: 

Illustration of Conditional Indorsement. — A 
United States note for five dollars is the unconditional 
promise of the Government to pay the holder thereof 
five dollars, and since it is a bearer instrument it re- 
quires no indorsement; yet A could deliver this note 
to B upon any oral condition that he sought to impose. 
It follows, therefore, that if the condition can be written 
upon the back of an order instrument, its transfer 
also may be affected thereby. 

Negotiable Instruments as Receipts. — In addition 
to transferring title and imposing liability upon the 
indorser, the indorsement may indicate payment and as 
receipts negotiable instruments are frequently offered 
in evidence in law suits. 

Negotiation to Prior Party. — Where an instrument 
is negotiated back to a prior party the latter may 
re-issue or further negotiate it ; but he cannot enforce 
payment thereof against intervening parties to whom 
he himself is liable. 



102 BUSINESS LAW 

Delivery More Important Than Indorsement. — 

It is well to remember that the delivery of the instru- 
ment is more important than its indorsement. If the 
instrument has been transferred without the indorse- 
ment which it requires^ the transferee acquires a right 
to compel his transferror to indorse it; but until deliv- 
ery, the instrument, even though specially indorsed, will 
give the intended transferee no right whatever. 

Who May Sue— Who May be Sued.— The holder 
of a negotiable instrument may sue thereon in his own 
name. He may sue the maker, acceptor, drawer or any 
prior indorser to whom he himself is not liable. Pay- 
ment to the holder satisfies him and the instrument be- 
comes the property of him who paid it, he in turn being 
(Subrogated (that is, substituted) to the rights of the 
former holder as against any person who is liable to 
the present holder. In other words, indorsers have 
recourse against their predecessors in title only and 
not against those who take subsequently. 

Order in Which Indorsers are Liable. — If there 
are five indorsers on an instrument, the holder may 
select any one of the five or the maker and compel him 
to pay who is selected. Thus if the holder compelled 
indorser number two to pay, the latter could have the 
instrument and proceed against indorser number one or 
against the maker, but not against indorser number 
three or indorser number four. 

Indorser's Liability Conditional. — Subsequent 
lectures will show that to fix the liability of any in- 
dorser the holder must present the instrument to the 
maker, demanding payment; and upon the latter's re- 
fusal or failure to pay, the holder must notify any in- 



NOTES 103 



104 NOTES 



BILLS AND NOTES 105 

dorser whom he intends to hold liable. Failure to pre- 
sent to the maker for payment and failure to notify 
any indorser of dishonor will discharge the indorser. 

Holder in Due Course — Section 52 of the Act 
should be committed to memory. It is as follows : 

" A holder in due course is a holder who has taken 
the instrument under the following conditions : 

1. That it is complete and regular on its face. 

2. That he became the holder of it before it was 
overdue, and without notice that it had been previously 
dishonored^ if such was the fact. 

3. That he took it in good faith and for value. 

4. That at the time it was negotiated to him he had 
no notice of any infirmity in the instrument or defect 
in the title of the person negotiating it/^ 

When Title is Defective — The title of a person 
who negotiates an instrument is defective when he ob- 
tains it or any signature thereto by frauds force^ fear 
or other unlawful means; or for an illegal considera- 
tion; or when he negotiates it in breach of faith or 
under such circumstances as amount to fraud. 

Notice of Infirmity — Xotice of an infirmity under 
Section 52 means actual knowledge or such means of 
knowledge that taking the instrument amounts to bad 
faith. If a holder is not one in due course he is sub- 
ject to these d-efenses as though the instrument were 
non-negotiable. 

Holder Presumed to be "In Due Course." — Every 
holder is deemed to be a holder in due course until the 
contrary is shown. 



XVII 

BILLS AND NOTES (CONTINUED) 

CONTRACTS OF THE PARTIES ANALYSED 

Parties to a Negotiable Instrument. — The person 
who signs an instrnment at the lower right-hand corner 
is called the maker or drawer, depending upon whether 
the instrnment is a promissory note or draft. The name 
which first appears on the instrument usually indicates 
the payee or person who is to receive the money. The 
name in the lower left-hand corner designates the 
drawee or person who is to pay the money. A check, 
which is similar to a draft, generally bears the name 
of the drawee in print above the name of the payee. 
Those persons whose names appear on the back of the 
instrument are called indorsers; and if there is not 
space enough upon the back of the instrument to accom- 
modate the names of all the indorsers, a slip of paper — 
called an allonge — may be attached to the instrument 
to be used for additional indorsements. If a person 
signs his name upon an instrument and it is not clear 
in what capacity he has signed, he is deemed to be an 
indorser. 

Contract of Maker — of Drawer. — The maker of 
a promissory note promises to pay it. The drawer of 
a draft engages that on due presentment the instrument 
will be accepted or paid and that he will pay if the 
instrument be dishonored by non-acceptance or non- 
106 



NOTES 



107 



108 NOTES 



BILLS AND NOTES 109 

payment. The liability of a maker is absolute and no 
steps need be taken to complete it; the liability of a 
drawer is conditional upon the proper proceedings being 
taken for dishonor. 

Contract of Drawee. — The drawee incurs no lia- 
bility until he accepts; thereafter he is treated as a 
maker. 

Contract of Indorser. — The indorser engages that 
he will pay the instrument if the maker or drawer fails 
to pay^, provided proceedings in dishonor be duly taken. 

Effect of Indorsing Bearer Instrument. — Where 
a person indorses an instrument negotiable by delivery 
alone — a bearer instrument — he incurs the liability of 
an indorser. Joint payees who indorse are deemed to 
indorse jointly and severally. 

Indorsement Transfers Entire Instrument. — An 
indorsement transfers the entire instrument^ that is, 
no indorsement can transfer part of the amount of the 
instrument to one indorser^ withholding the balance ; nor 
can the amount of the instrument be divided by indorse- 
ment among several payees. Of course^ as indicated 
above, the instrument may be reduced by part payment 
and remain negotiable as to the balance yet due. 

Receipts for Part Payments. — One who is liable 
upon an instrument and who pays part thereof should 
take the precaution of having the sum paid noted upon 
the back of the instrument; otherwise, while he may 
hold the receipt of the creditor, the instrument is col- 
lectible to the amount on its face if it is further nego- 
tiated to a holder in due course. At this point it might 
be well to say that as between immediate parties to an 



no BUSINESS LAW 

instrument any defense which would invalidate an ordi- 
nary contract is good; but as between remote parties 
(those having no immediate relation through the instru- 
ment) these personal defenses are worthless, unless the 
remote parties have knowledge of them. 

In the following summary, proceedings upon dis- 
honor are explained respecting dishonor for non-pay- 
ment, but the rules laid down are substantially the same 
as those governing dishonor for non-acceptance. 

Proceedings Necessary to Charge Indorsers. — 
Proceedings for dishonor include three separate steps: 

1. Presentment to the maker for payment. 

2. Notice to the indorsers of non-payment or dis- 
honor. 

3. In the case of a foreign bill only, protest before 
a notary public. (It is true that it is customary to 
protest domestic bills as well, but the law does not 
require protest except in the case of foreign bills.) 



NOTES 111 



112 



NOTES 



XVIII 
BILLS AND NOTES (CONTINUED) 

PRESENTMENT FOR PAYMENT 
NOTICE OF DISHONOR 

First Step is Presentment for Payment. — Pre- 
sentment for payment to the maker is the first step to 
charge indorsers; unless an instrument is presented for 
payment^ they are discharged from liability. No pre- 
sentment is ordinarily necessary to charge a maker but 
if a place for presentment is specified in the instrument 
and the holder fails to present the instrument there, 
upon suit brought^ the maker need not pay more than 
he would have had to pay on the day of presentment. In 
other words, he need not pay costs of suit nor interest 
from the day fixed for presentment. 

Where Made. — Presentment shall be made at the 
place specified in the instrument, or^ if none be specified, 
at the place of business of the maker; or, if none, at 
his place of residence; or, if none, where he can be 
found; and if he cannot be found, presentment is 
excused. 

To Whom Made. — Presentment shall be made to 
the maker; or if he is not present, to an adult person 
associated with the maker. Or if the maker is dead, to 
his personal representative^ — executor or administrator. 

If Presented at Bank. — Presentment at a bank, 
when authorized by the maker, is a direction to the bank 
to pay. The person paying an instrument has a right 

113 



114 BUSINESS LAW 

to its physical possession and the holder shall surrender 
it to him. 

When Presentment Shall be Made. — Time instru- 
ments shall be presented on the due date^ v/hich is as- 
certained by excluding the da,j of issue and including 
the day of presentment. Demand instruments shall be 
presented a reasonable time after issue. 

In the case of checks a reasonable time exists so 
long as the drawer has funds in the bank to pay the 
check. 

Days of Grace. — Where no days of grace exist no 
time for payment remains after maturity. 

Saturdays and Holidays. — Time instruments fall- 
ing due on Saturday^ Sunday or on a holiday, mature 
the following business day. Demand instruments may 
mature on Saturday before twelve o'clock noon at the 
option of the holder. 

By Whom Made.— Presentment shall be made by 
the holder or his authorized agent. 

NOTICE OF DISHONOR 

(This title covers notice of dishonor for non-payment 
only, as explained in the last lecture, but that for non- 
acceptance follows the same rules.) 

Second Step is Notice of Dishonor. — Sending to 
each indorser a notice of non-payment is the second step 
necessary to hold indorsers liable. 

By Whom Given. — By the holder, or by someone 
acting as his agent; by any party to the instrument 
who might be compelled to pay the holder and who, if 
he so paid, would have a right of recourse against the 
notified party. This means that a prior indorser could 



NOTES 115 



116 NOTES 



l| 



BILLS AND NOTES 117 

notify another indorser liable to him. An illustration 

of this principle follows : 

A 1 

■R ! 

s Indorsers on note. 

C ( 

^ i 

Although he is not the holder, C could notify A of 
non-payment by the maker because A is liable to C. 

To Whom Given. — Notice of non-payment may be 
given to the indorser or to his agent; or, if he is dead, 
to his personal representative ; if he is dead and has no 
personal representative, it may be left at his last place 
of business; to his partner; if he is a bankrupt, to his 
trustee. 

When Notice Should be Given. — Notice may be 
given at once — immediately uj)on dishonor; if the 
holder and indorser reside in the same town notice must 
be given before the end of business hours the day fol- 
lowing; if it is given at his residence, before bed-time, 
say 10 p. M. on that day; if sent by mail, the letter 
should be deposited in the post office (including sub- 
stations and mail-boxes, but not letter carriers) so that 
notice will reach the indorser on the day following. 

(Note: The "day following ^^ means the day after 
presentment. ) 

If the holder and indorser reside in different towns 
and the notice is sent by mail, it should be in the post 
office in time to go the day after dishonor. If sent 
otherwise than through the post office, then it should 
be received at the same time it would have been re- 
ceived if it had gone by mail. In all cases, the mail 
is the agent of the indorset; so that if the notice is 



118 BUSINESS LAW 

lost^ that fact does not affect the holder. A short rule 
is to mail " notice ^^ within twenty-four hours of present- 
ment. 

Where Notice is to be Sent. — The order of pref- 
erence as to the place where notice should be sent is: 
1. Indorser^s place of business; 2, his residence; 3^ his 
post office address by letter ; 4^ if the indorser has added 
his address to his signature^ notice should be sent there; 
5^ to his last known address. 

It is important to observe that notice has nothing 
to do with presentment. The latter is made to the 
maker; notice is sent to the indorsers. 

Waiver of Notice of Dishonor. — Notice of dis- 
honor may be waived; if the waiver is in the instru- 
ment, no notice to any indorser is necessary; when it 
is written upon the back of the instrument by one of 
the indorsers, notice need not be sent to him but should 
be sent to all others. 

The words " no protest ^^ mean that no notice is 
necessary as well as that no presentment is necessary. 

Form of Notice of Dishonor. — The following is 
a form of notice which may be sent to indorsers: 

Mr. F. a. Blank, 

Philadelphia, Pa. 
Dear Sir: 

Please take notice that the following instrument upon 
which you are an indorser was duly presented to the maker 
for payment at his place of business on the 15th day oi 
March, 1915, between the hours of one and two o'clock, P.M.; 
whereupon he refused payment of the same. 

( Here follows copy of the instrumejit. ) 

This is to notify you that as indorser you will be held 
liable to pay the said instrument. 

Yours truly, 
(Sgd.) X, Notary, or by the holder. 



NOTES 119 



120 NOTES 



^ 



BILLS AND NOTES 121 

Notary is Agent of Holder. — The notice of dis- 
honor may be sent by the notary who is employed to 
make protest; but in any event it must be sent in all 
cases^ whether protest is made or not. 



XIX 

BILLS AND NOTES (CONTINUED) 
PROTEST 

Third Step is Protest. — Protest as hereinafter de- 
fined (as stated in a previous lecture) is unnecessary 
in proceedings upon domestic bills and notes^ but is 
necessary in proceedings upon foreign bills and notes. 
However, as was also noted in a previous lecture, it is 
general business practice to protest all bills and notes — 
foreign and domestic — where there are indorsers. 

Definition of "Protest." — Protest is a paper pre- 
pared by a notary public under his own hand and official 
seal, reciting the fact that he has presented an instru- 
ment — properly described in the protest — to the maker 
or drawee, for payment or acceptance; and that though 
properly presented, payment or acceptance was refused. 

Reason for Protest. — The purpose of protest in 
domestic and foreign bills, aside from the requirements 
of the Act, is to render proof easier for the holder when 
he brings suit. Consequently, the protest paper, when 
prepared by the notary is given by him to the holder, 
who keeps it for use as evidence in case he must sue 
upon the instrument. 

Difference Between Protest, Presentment and 
Notice. — Protest must not be confused either with 
presentment or notice; it is not the presentment, but 
the written proof of it; it is not notice because it is 
not sent to the indorsers. However, when a notary is 

122 



NOTES 123 



124 NOTES 



<l 



BILLS AND NOTES 125 

employed to make protest^ he usually also assumes the 
burden of sending out the notices. 

FORM OF PROTEST: 

Philadelphia, Pa., March 15, 1915. 

I, William Brown, a Notary Public for the State of 
Pennsylvania, residing at Philadelphia in the said State, 
do hereby solemnly declare that on the 15th day of March, 
a.d. 1915, I presented to the maker named therein at the place 
specified therein, between the hours of one and two o'clock 
P.M. on the said day, an instrument of which the following 
is a copy: 

(Here follows a copy of the instrument.) 

And then and there payment (or accepi^ance) was de- 
manded of the said maker (or drawee) but payment (or 
acceptance) thereof was refused by him. 

Whereupon, I, the said Notary, at the request of the 
holder of the bill, aforesaid, have protested, and do hereby 
solemnly protest, against all persons and every party con- 
cerned therein, whether as Maker, Drawer, Drawee, Acceptor, 
Payer, Endorser, Guarantor, Surety, or otherwise howso- 
ever against whom it is proper to protest, for all Exchange, 
Re-exchange, Costs, Damages and Interest, suffered and to be 
suffered for want of payment (or acceptance) thereof. 

Witness my hand and notarial seal the day and year 
first above written. 

(Notarial seal.) (Sgd.) William Brown. 



XX 

BILLS AND NOTES (CONCLUDED) 

MISCELLANEOUS 

Two Kinds of Negotiable Instruments — Prom- 
ises and Orders. — The i'oregoiiig lectures should have 
disclosed the fact that there are but two kinds of nego- 
tiable instruments — promises and orders. The promise 
is typified by the promissory note; and the order is typi- 
fied by the check. Some orders are converted into 
promises by the action of one of the parties; thus an 
accepted draft becomes the promissory note of the 
drawee or acceptor. Again he who is primarily liable — 
as the drawer — may become secondarily liable as an in- 
dorser; thus the drawer of a draft becomes an indorser 
upon acceptance by the drawee. 

Indorser's Contract Resembles Surety Contract. 
— I'he indorser's contract liability is in the nature of 
that of a surety. In effect he says that if the holder 
affords the person primarily liable an opportunity to pay 
and he fails to do so^ and if the holder will then notify 
the indorser of these facts, the latter will pay. 

Installment Notes in Series. — A man may make p 
note payable in installments, in which case he should 
be sure that installment-payments to the holder are 
noted on the back of the note. The best way to pay 
sums of money in installments is to make a separate 
note for each installment, so that a note is surrendered 
to the debtor when the particular installment is paid. 
126 



i 



NOTES 127 



128 NOTES 



BILLS AND NOTES 129 

Bills in a Set. — Drafts designed for foreign use are 
frequently drawn in duplicate or in triplicate and are 
known as bills in a set. Of course payment of one 
is payment of all. The reason for this practice is 
because foreign mails and foreign travel are still liable 
to suffer those accidents and unforeseen happenings 
which have been largely eliminated in domestic inter- 
course. The way for the acceptor to protect himself is 
to pay that bill of the set which bears his acceptance. 

Discount of Drafts Prior to Acceptance. — The 
student is frequently puzzled by the discounting of 
drafts before acceptance; but if he will remember that 
the drawer is liable upon that draft he wall understand 
that it may be discounted or negotiated exactly as a 
promissory note. Acceptance merely transfers the bur- 
den of primary liability. 

Difference Between Checks and Drafts. — A check 
differs from a sight draft in that it is drawn upon a 
bank w^hile a draft is usually drawn upon individuals 
not necessarily engaged in banking. It resembles a 
sight draft in that acceptance need not be made in 
wTiting and payment is simultaneous therewith. It is 
well to remember^ however^ that the drawee need not 
honor the draft; he may choose to pay his debt in 
some other way. But the bank and its depositor have 
entered into an agreement whereby the former engages 
to honor the checks of the latter so long as he has funds 
on deposit sufficient to meet the amount of the checks 
presented for payment. 

Certified Check — Contrasted With Accepted 
Draft. — A certified check is an accepted draft in the 



130 BUSINESS LAW 

ordinary sense of the word;, since payment is to be made 
subsequently to acceptance. Certification operates as an 
assignment of the funds of the drawer; consequently 
upon certification the drawer and indorsers are dis- 
charged from liability. This is not true of an ordinary 
draft because there is no special fund which is set aside 
to pay it. 

Bank Drafts. — Checks drawn by one bank upon 
another do not differ materially from ordinary checks 
except that the stability of banks lends additional guar- 
antee of payment. They are called bank drafts. 

Cashiers' Checks. — Checks drawn by a cashier upon 
his own bank are called cashiers^ checks. 

How Long is a Check "Good". — The question 
arises frequently how long is a check " good.^^ Section 
186 of the Negotiable Instruments Act reads as follows : 
'' A check must be presented for payment within a 
reasonable time after its issue, or the drawer will be 
discharged from liability thereon to the extent of the 
loss caused by the delay.^^ What is a reasonable time 
depends upon the facts of each particular case, and this 
is true also as to " loss.^^ 

Certificate of Deposit. — A certificate of deposit is 
an interest-bearing promissory note of a bank. The rate 
is usually three or four per cent, and the certificate is 
usually payable on demand. * 



NOTES 131 



132 NOTES 



XXI 

JUDGMENT NOTES— JUDGMENTS— EXEMP- 
TION 

Suit on a Negotiable Instrument. — If a debtor 
upon a negotiable instrument fails to pay, the remedy 
of the holder lies in the courts. If the defendant is 
the maker, proof of execution of the note by him is 
sufficient to establish the plaintiff's claim. But if the 
defendant is an indorser the plaintiff must prove the 
indorsement and must also show that presentment for 
payment was made to the maker and that notice of 
dishonor was given to the defendant indorser. 

Judgment Note. — There is a form of note which 
obviates the trial in court briefly outlined above. Fol- 
lowing the recitation of the promise, this note contains 
a paragraph confessing judgment to the holder of the 
instrument. These notes are called judgment notes, 
deriving the name from the fact that judgment may be 
entered upon them without any court proceedings ex- 
cept the filing of the instrument in the office of the 
prothonotary or clerk of court. 

Judgments by Confession. — Judgments so ob- 
tained are called judgments by confession or by agree- 
ment. 

Waiver of Exemption, Etc. — In addition to the 
promise and the confession of judgment, a good judg- 
ment note will contain a waiver of the benefits of ex- 
emption laws as well as waivers of the benefits of laws 

133 



134 BUSINESS LAW 

relating to stay of execution and inquisition (finding 
the value of) on real estate. 

Judgments — Kinds of Judgments.— The subject 
of judgment notes leads us naturally to a discussion of 
judgments in general. A judgment may be briefly de- 
fined as a final order or decree of court fixing the rights 
and liabilities of the parties to a law suit. If the plain- 
tiff seeks damages^, the judgment will fix the amount 
which the defendant shall pay him ; but if the judgment 
is in favor of the defendant, he will owe the plaintiff 
nothing. Interest and the costs of suit (attorneys^ fees 
are not usually included in costs) follow the judgment. 
If the plaintiff seeks to recover a particular thing, as in 
replevin, the judgment will give him that particular 
thing; if the plaintiff seeks to restrain the defendant 
from doing something injurious to the former, or seeks 
to compel him to do something which the plaintiff 
claims he ought to do, judgment for the plaintiff will 
establish his right. 

Judgments, whether secured by court trial or by con- 
fession, have the same results; that is to say, the case 
is finally disposed of by the court. 

Lien of Judgment — Revival. — A judgment is a 
lien or burden upon real estate at the time of its entry — 
when it is filed in the prothonotary's office — and for a 
period of five years thereafter; and it may be revived 
every fifth year thereafter, without limit, thereby retain- 
ing its lien upon the real estate of the defendant. It 
follows that, unrevived, the judgment loses its lien on 
real estate at the expiration of the first five years. 

Not a Lien on Personalty. — Judgments are not 
liens on personal property but execution may be issued 



NOTES 135 



136 NOTES 



JUDGMENT NOTES, JUDGMENTS, ETC. 137 

upon the judgment whereby either personal property 
or the real estate of the defendant may be seized and 
sold, the proceeds of the sale to pay the debt. Execution 
may issue upon any judgment within twenty years of 
the date of its entry. 

Judgment Index. — Upon the entry of the judgment 
it is indexed in a book called the Judgment Index, by 
the prothonotary or clerk of the court in which it was 
obtained. It may be found under the last name of the 
defendant and cross-indexed under his first name. 

Caution. — When real estate is purchased the buyer 
is careful to see that there are no judgments against the 
owner; for the property itself, when subject to a lien, 
may be sold to satisfy that lien irrespective of its sub- 
sequent transfer to an innocent buyer. 

Judgments as Investments. — Since judgments bear 
interest at the rate of six per cent, per annum, those 
which are liens upon ample real estate are such good 
investments that execution is seldom issued upon them, 
they being satisfied at the next transfer of the property. 
But if there is no real estate upon which the judgment 
can be a lien or if it is insufficient in value or if the 
plaintiff needs the money, he will proceed to collect the 
amount of his judgment. 

Execution — Writs. — Execution is the appropriate 
process by which the collection of judgments is effected. 
This is too intricate a subject to be discussed here; suf- 
fice it to say that there are various writs of execution 
known as fieri facias or fi. fa., levari facias or lev, fa., 
venditioni exponas or vend, ex., scire facias or sci. fa., 
foreign and domestic attachment and attachment exe- 
cution. 



138 BUSINESS LAW 

Officers of Court. — The officers who serve these 
writs are known as sheriffs^ constables and marshals. 

Exemption. — Every defendant^, when his goods are 
seized by the sheriff upon a writ of execution^ and if he 
has not waived it^ may claim an exemption; that is to 
say, keep certain personal property free from seizure. 
The theory of exemption is that if the creditor be per- 
mitted to take the last penny from the debtor^ the latter 
may become a charge upon the community ; yet the 
theory is hardly reconcilable with the undoubted right 
of the debtor to waive the benefit of the exemption. 

Amount of Exemption. — The law of Pennsylvania 
exempts personal property to the amount of three hun- 
dred dollars; this may be made up wholly of cash or 
of personal property or of both. The value of personal 
property claimed under an exemption is fixed by ap- 
praisers. 

In addition to the three hundred dollars exemption^ 
the debtor in some States may claim Bibles, school books, 
wearing apparel and sewing machines as exempted 
property. 



I 



4 

i 



NOTES 139 



140 NOTES 



xxn 

MORTGAGES AND CONVEYANCES 

In the last lecture we considered one type of lien — 
judgments. Liens arise in other ways also. The com- 
monest type of lien is that of a mortgage. 

Definition of Mortgage. — A mortgage may be de- 
scribed briefly as a pledge or pawn of real estate as 
collateral security for the repayment of a loan. The 
loan itself is evidenced by the paper which always ac- 
companies the mortgage — the bond. He who loans the 
money and takes the mortgage as his security is called 
the mortgagee. He who receives the money and signs 
the mortgage is called the mortgagor. Note that the 
relationship is that of creditor and debtor. 

Explanation of Mortgage. — The mortgage itself 
does not convey the legal title of the property to the 
mortgagee or to anyone else^, although what appears to 
be a conveyance is recited. It gives the mortgagee a 
right to sell the pledged property at public sale^, if the 
contracts in the mortgage are broken by the mortgagor. 
The following are the conditions or contracts in a mort- 
gage : 

Promise to Repay Loan. — 1. Promise to repay the 
loan at a fixed or determinable time : In a straight mort- 
gage three or five years and in the case of a building 
association mortgage^ when the stock matures. 

Promise to Pay Interest. — 2. Promise to pay in- 
terest on the loan : The usual rate of interest on a 

141 



142 BUSINESS LAW 

straight mortgage being five and four-tenths per cent, 
and six per cent, on building association mortgages. The 
four-tenths per cent, covers the state tax on mortgages. 
Interest periods on ordinary mortgages are usually semi- 
annual, but building association interest is paid monthly. 
Promise to Show Receipts. — 3. The mortgagor 
must exhibit receipts for taxes and water-rent and for 
interest due upon prior mortgages. The time to show 
these receipts is fixed by the mortgage, usually Sep- 
tember first of the current year being the date selected. 
Promise to Maintain Fire Insurance. — 4. Promise 
to keep all buildings insured against loss by fire. The 
policy of insurance approximates the amount of the 
mortgage and should be given to the mortgagee to hold 
during the life of the mortgage. 

Proceedings to Sell Under a Mortgage. — Pro- 
ceedings to sell the mortgaged premises are begun upon 
the writ called scire facias, spoken of in a preceding 
lecture. If the mortgagor desires to do so, he may file 
an answer and the case will go to trial in a manner 
similar to an ordinary contract suit. If there is no de- 
fense — and there usually is none — the mortgagee enters 
judgment on his writ and includes in his damages the 
face value of the mortgage, all the arrearages of interest, 
the costs of suit and the attorney's fee reserved in the 
bond. The property is then advertised for sale by the 
sheriff and is sold by him. In addition to the amount 
of the judgment, the sheriff's costs of levy and sale must 
be paid. 

Who May Purchase from Sheriff. — Any person, 
including the mortgagee, may purchase the property at 
the sale and the purchaser takes it free from the lien of 



NOTES 143 



144 NOTES 



MORTGAGES AND CONVEYANCES 145 

the mortgage under which the property has been sold. 
The sale also discharges all liens of mortgages created 
subsequent to the one under which the sale is made. 

Fund Realized from Sale. — The money realized 
from the sale is paid into the hands of the sheriff^ who 
pays the mortgage-judgment and costs, returning any 
unused balance to the mortgagor. Municipal claims 
are a first lien upon the fund and if it is not large 
enough to pay them the sale will not discharge them, no 
matter when they accrued. 

Bond Accompanying the Mortgage. — The bond 
which accompanies the mortgage contams a confession 
of judgment similar to that in a judgment note. There- 
fore, in addition to issuing a scire facias on the mort- 
gage, the bond may be entered up and becomes a judg- 
ment. This bond- judgment is a lien upon all other real 
estate which the mortgagor may own ; and if the sale of 
the mortgaged premises fails to produce a sufficient sum 
to pay the mortgage debt, other property of the mort- 
gagor may be seized and sold under the judgment on 
the bond, 

CONVEYANCES 

When a man wishes to purchase real estate, he is 
met with a number of legal requirements which may ap- 
pear intricate to him and even burdensome, but which 
he will find to be devised for his benefit. 

Purchaser Pays Costs of Transfer. — The costs in- 
cident to the transfer are usually borne by the purchaser. 
It is true the seller may pay a conmiission to the per- 
son who negotiates the sale for him, but this is really 
not a part of the transfer expenses. 



146 BUSINESS LAW 

Written Agreement and What it Should Con- 
tain. — The first step to be taken by the parties after 
they have agreed upon a price is to draw a contract in 
writing as required by the Statute of Frauds. In this 
agreement should appear the proper names of the parties, 
a short description of the property, the price agreed 
upon, whether or not the property is sold subject to 
incumbrances and the amount thereof, and the date of 
settlement. It is also a receipt for the money paid to 
bind the bargain — down money, as it is called. The 
agreement should also provide for an apportionment of 
taxes, water-rent and interest on any incumbrances, and 
of house-rent if the property be presently leased ; a pro- 
vision that the seller will pay any unpaid gas bills; a 
further provision should be made as to the date when 
possession of the property will be given. Most impor- 
tant of all is the specification that the title is good and 
marketable. If a newly-erected or recently-altered build- 
ing is upon the property there should be some agree- 
ment guarding against mechanics' liens. 

Preparing New Deed. — Immediately after the 
contract is signed the purchaser borrows the deed of 
the vendor or secures a copy of the description of the 
property. It is this description that he uses in the prep- 
aration of his own deed which he will tender to the ven- 
dor for execution on the day of settlement. 

Examining or " Searching " Title. — Then the ven- 
dee will order title searches and insurance from one 
of the companies engaged in that business. The title 
company searches or investigates the title of the prem- 
ises to be transferred with special reference to mort- 
gages, judgments and municipal claims and to make 



NOTES 147 



148 NOTES 



II 



MORTGAGES AND CONVEYANCES 149 

certain that the supposed vendor is really the owner in 
fee. After completing its search^ a certificate showing 
the incumbrances upon the property is given to the pur- 
chaser; if there are incumbrances upon it not contem- 
plated iii the agreement of sale^ the vendor is notified 
to clear them off. If he is unable to do so the vendee 
is not obliged to take the property and may recover the 
money which he has paid down and for which his agree- 
ment of sale is a receipt. 

Title Company May Pay off Incumbrances. — If 
the purchase price is sufficient to clear off the incum- 
brances, the purchaser may pay his money to the title 
company who will pay thereout the amount of the in- 
cumbrances ; paying the balance, if any^ to the vendor. 

Settlement. — On the day fixed for settlement the 
parties assemble at the title company^s office and their 
clerk ascertains the amount due to the vendor, appor- 
tioning municipal claims, interest and house-rent to 
the day of settlement. 

Recording. — The deed executed by the vendor is 
then recorded by the title company and when recorded 
it is delivered to the vendee together with a policy of 
title insurance. 

Title Insurance. — By their title policy the com- 
pany guarantees to the purchaser that his property 
is free from all incumbrances except those whicli the 
parties have agreed shall remain upon the property. 



XXIII 

ESTATES— WILLS 

Definition and Explanation of " Property ". — 

The word " property ^^ means that interest or ownership 
which a man may have in material things. Commonly, 
however, the term is used to designate the material 
thing itself and not the interest in it. Thus we say 
" real property ^^ in describing land and buildings ; and 
'^ personal property ^^ in speaking of movable things 
and choses in action. As we have seen, rights in per- 
sonal property are easily understood and analyzed, but 
rights of ownership in real estate are much more com- 
plicated and perhaps not so easy to understand. 

Definition of " Estate " — Kinds of Estates. — A 
property right, interest or ownership in land is called 
an estate. Generally, these ownerships or estates may 
be divided into : 

1. Estates of inheritance. 

2. Estates not of inheritance. 

Estate of Inheritance. — The first may be described 
as that ownership which under intestate laws will de- 
scend to the heir of the owner. If the estate has this 
quality it follows that the owner may sell it outright 
in his lifetime or dispose of it by will at his death. 
Such an estate is called a fee simple. 

Estates Not of Inheritance. — Estates not of in- 
heritance include all other interests in land. Thus 
one may hold land for the term of his life or of the life 
of another, called a life estate; or he may hold land 
150 



NOTES 151 



15-2 



NOTES 



\ 



ESTATES— WILLS 153 

for a term of years, called a leasehold estate ; or he may 
be permitted to remain as a tenant at the will or 
pleasure of another. 

Property — How Acquired. — All property rights 
are acquired in two ways: 

1. By descent or operation of law^ which includes 
propertj^ acquired under the intestate laws. 

2. By jDurchase, which includes property acquired 
in any other way than by descent, as by deed, will or 
gift. 

Intestate Distribution — Lineals. — The laws reg- 
ulating the descent of property from the decedent (the 
deceased) tohisheirs vary slightly in the different States. 
In general it may be said that the decedent^s property, 
subject first to dower and curtesy, is divided among his 
children in equal shares, the children of a deceased 
child (grandchildren of the decedent) taking their par- 
ent's share; if there are no children the property will 
be divided among the grandchildren in equal shares ; and 
so on downwards. But if there are no descendants, 
then the decedent's property will go by operation of 
law to his father and mother, if they be both alive, and 
they will take by entireties, that is, they both own the 
whole, and upon the d'eath of either, the survivor be- 
comes the owner of the whole; if they both be dead, 
then to the intestate's grandparents ; and so on upwards. 
These persons, who are directly in the line of the intes- 
tate, are called lineals. 

Collaterals. — If there are no lineals, then the prop- 
erty of the decedent will go by operation of law to his 
brothers and sisters, the children of the deceased brothers 
and sisters — ^nephews and nieces — taking their parents' 
share. Failing these heirs the property would go to 



154 BUSINESS LAW 

the heirs of half-brothers and sisters, following the 
same rules. These persons not in a direct line with 
the decedent are called collaterals. 

Escheat. — If a man dies intestate leaving no sur- 
viving heirs^ his property goes to the State. This is 
called escheat. 

Dower. — Dower is the interest which a woman ac- 
quires in her husband's property by reason of her mar- 
riage. So long as her husband lives her dower interest 
cannot be separated from his ownership. The amount of 
the interest which is set aside for her at his death 
differs in the various States. In Pennsylvania, if there 
are no children she takes one-half of her husband^s 
personal property absolutely and one-half of his real 
estate for her life. If there are children, the wife takes 
one-third of the personal property absolutely and one- 
third of the real estate for her life. In addition to 
these shares she is entitled to an exemption of three 
hundred dollars, whether or not there are children; if 
there are no children, by the Act of 1909, she is en- 
titled to five thousand dollars more. While the dower 
interest cannot be separated during the lifetime of her 
husband, proof that it exists is found in the fact that he 
cannot dispose of his real estate, freed from her dower 
interest, unless she joins in the conveyance or deed. 

Curtesy. — Curtesy is the interest in his wife's prop- 
erty which the husband acquires upon marriage. How- 
ever, as in the case of dower this interest cannot be 
separated till the death of the wife, meanwhile limiting 
conveyances intended to be made by the wife; that is, 
he must join in them. The extent of curtesy is, if 
there are no children, that the husband takes all the 



NOTES 155 



156 



NOTES 



ESTATES— WILLS 157 

personal property absolutely and all the real estate for 
his life ; if there be children^ the husband takes all the 
real estate for life and shares equally with the children 
absolutely in the personal property. 

Where property passes by deed or conveyance' we 
have exemplified the popular idea of purchase. An es- 
tate of inheritance or one not of inheritance may pass 
by deed. 

One who takes property under a will is a purchaser 
the same as though he took by deed. 

Extent of Estate Which May be Purchased — Re- 
version — Remainder. — He who takes by purchase may 
take an entire interest or ownership (the equivalent ot 
complete ownership or estate of inheritance) pr a limited 
estate. If the estate or ownership in land is for a 
limited time^ when the estate has expired, the property 
will revert or go back to the previous owner. This is 
called reversion. If the estate created for a limited 
time is by authority of the grantor subsequently to 
pass to another when the limited estate has expired, 
the estate left over is called a remainder. 

Tenants in Common — ^Joint-tenants. — If either 
through inheritance or purchase a number of persons 
share in a single piece of property they are either own- 
ers in common, called tenants in common; or joint- 
owners, depending to a certain extent upon the language 
of the instrument under which they took. It is impor- 
tant to know whether these owners are tenants in com- 
mon or joint-tenants for this reason: That in a joint- 
tenancy, if one of the joint-tenants dies, his share be- 
comes the property of his surviving former co-owners. 
This is called survivorship. 



158 BUSINESS LAW 



WILLS 



Definition of a Will. — A will is the testamentary 
disposition of a man's property, either real or personal^ 
or both, made in accordance with certain prescribed 
forms of law, which is to take effect at his death. 

Any person who has become of age and is of sound 
mind may make a will. 

How Will is Made. — The law usually provides that 
all wills must be made in writing and signed at the end 
thereof by the testator, unless he is prevented from do- 
ing so by the extremity of his last illness ; or by someone 
in his presence and at his express direction. 

Non-Cupative Wills. — In addition to wills of this 
character, there are wills made orally. However, such 
wills can only dispose of personal property and are valid 
only where a man has been prevented by the extremity 
of his last illness from making a written will, and must 
be reduced to writing within six days following the 
death of the testator. These are called non-cupative 
wills. 

Proof of Signature — Bequests to Charity. — In a 
written will the signature of the testator must be proved 
by two witnesses. In Pennsylvania, where the will con- 
tains bequests to charities, in order for these bequests to 
be valid, the will must have been made more than thirty 
days before the date of death of the testator and wit- 
nessed by two subscribing witnesses. Death of the tes- 
tator before the expiration of the thirty days would 
invalidate only the bequests to charity. 

Without Undue Influence. — The testator should 
be of sound mind at the time he makes his will, and it 



NOTES 159 



160 NOTES 



ESTATES— WILLS 161 

must have been made without duress, coercion and un- 
due influence. In other words, it must be the testator's 
will, expressed without unlawful influence or restraint. 

Revoking Will — Codicils. — As said above, a will 
takes eft'ect at the date of death of the testator. Thus, 
at any time prior to his death, after making the will, 
he may change its terms, or revoke it altogether. He 
may change it or revoke it by what is called a codicil. 
This is a paper drawn up with the same formalities as 
the will. 

Other Methods of Revoking Will. — The testator 
may also change or revoke his former will in the follow- 
ing ways: 

1. By making a will inconsistent with the former 
one. 

2. By other writing duly executed and proved. 

3. By burning, cancelling, mutilating, obliterating 
or destroying the former will, done either by the testator 
himself or by someone in his presence and at his express 
command. 

Revocation by Law.— If a man makes a will, then 
marries and dies, his w^ill is revoked so as to allow the 
widow and children to take such shares as they w^ould 
have been allowed under the intestate laws. The rest of 
the estate would then pass to those named in the will. 

If a married man makes a will and later has a child 
not provided for in it, it is rel^oked to like extent ; that 
is, the child will take his share under the intestate 
laws and the will disposes of the balance of the estate. 

A single woman's will is revoked by marriage, and is 
not revived by the death of her husband. 



162 BUSINESS LAW 

Election of Husband or Wife to Take Against 
Will. — Either wife or husband^ upon the death of the 
other^ can elect to take against the will of the deceased. 
In snch case the wife is entitled to the share she would 
have received had her husband died intestate^ while the 
husband is entitled to the share his wife would have 
taken out of his estate had he died intestate; with the 
exception that he is not entitled to the three hundred 
dollar exemption nor the five thousand dollar exemption. 

Probate. — After the death of the testator^ his will 
is admitted to probate, that is, the Eegister of Wills or 
Surrogate decides whether or not the will produced is 
the will of the testator; and if it is, then the bequests 
and legacies in the will are distributed according to its 
provisions. 

Executor — Administrator.— -The person named as 
executor in the will manages the estate and distributes 
it. Unless he is a foreign executor, he need not give a 
bond. In intestacy, the Court appoints an adminis- 
trator who must file a bond with two sureties. Both 
executors and administrators must file satisfactory ac- 
counts before the Court will discharge them. Neither 
has any control over real estate or rents unless the 
will so provides. 



NOTES 163 



164 



NOTES 



XXIV 
PARTNERSHIPS 

Introduction. — It is difficult to frame a definition 
of the word ^"^ partnership ^^ which will guide us in a 
particular case in determining who is and who is not a 
partner. However, the following definition, explained 
by the rules given below, is suSiciently explicit for our 
purposes. 

Definition of Partnership. — A partnership exists 
when two or more persons agree to associate themselves 
together, as co-owners, to carry on a business^ sharing 
profits and losses. The agreement is usually in writing, 
but in some cases the relationship may be established 
by the acts or omissions of the partners or by other 
circumstances. 

Rules to Determine Existence of Partnership. — 
1. A share in the profits of the business is prima facie 
evidence that the person receiving it is a partner, but 
no such inference may be drawn if such profits were 
received in payment: 

a. Of a debt, by installment or otherwise. 

&. Of wages to an employee and rent to a landlord. 

c. Of an annuity to a widow or representative of a 
dieceased partner. 

d. Of interest on a loan, though the ratio of payment 
varies with the profits of the business. 

e. For the sale of the good will of a business or 
other property, by installment or otherwise. 

165 



166 BUSINESS LAW 

2. Sharing in the losses of a business is evidence of 
a partnership when coupled with number 1. 

3. Joint-tenancy, tenancy in common, tenancy by 
the entireties or part ownership do not alone establish 
a partnership, whether such owners do or do not share 
in profits arising from their use of the common property. 
In other words, the sharing of gross returns does not of 
itself establish a partnership, even though the persons 
sharing them have a general or common interest in the 
property from which the returns are derived. 

Kinds of Partners. — Partners are general, special, 
ostensible, silent or by estoppel. 

General. — A general partner is one who has equal 
rights with the others concerning the management of 
the business and who shares profits and losses equally 
with them. 

Special. — A special partner is one who has no voice 
in the management of the business and is entitled to 
a limited return or profit; and who is only liable for 
losses to the extent of the capital he has invested in the 
business. 

Ostensible. — An ostensible partner is one who is 
known as a partner and who may be liable generally 
or specially. 

Silent. — A silent partner is one who is a partner 
though that fact is unknown to the public. Such part- 
ner may be either general or special. 

By Estoppel. — A partner by estoppel is one who, 
by his acts or his failure to act when he was in duty 
bound to do so, has lost the right to deny that he is a 
partner and is therefore liable as such. 

The student will observe that a man can be a general 



NOTES 167 



168 



NOTES 



PARTNERSHIPS 169 

as well as a silent partner or an ostensible partner by 
estoppel, etc. 

(A) RELATIONS OF PARTNERS AMONG THEMSELVES 

Partners are Trustees. — Eespecting his other part- 
ners, each partner is a trustee. He must act in good 
faith in all of his dealings in connection with partner- 
ship affairs. On demand he shall furnish full infor- 
mation concerning matters affecting the partnership, 
to his fellows, to the legal representative of a deceased 
partner or to a partner under legal disability. 

Ordinarily the relations between partners are gov-i 
erned by their mutual agreement, but subject to such 
agreement the law provides as follows : 

1. All partners have equal rights concerning the 
management of the business. 

2. Each partner shall be repaid his contributions — 
whether they consist of capital or advances — and shall 
share equally in the profits and surplu^s remaining 
after all liabilities — including those due to partners — 
are satisfied; and must contribute his share of the 
losses sustained by the partnership — whether of capital 
or otherwise — according to the ratio of his share of the 
profits. 

3. The partnership must indiemnify each partner 
in respect to payments made and personal liabilities 
reasonably incurred by him in the ordinary and proper 
conduct of its business or for the preservation of its 
business or property. 

4. No partner is entitled to compensation for man- 
aging partnership affairs, except that a surviving part- 



170 BUSINESS LAW 

ner is entitled to a reasonable sum for his services in 
winding up the business. 

5. Differences or disagreements concerning ordinary 
matters connected with the partnership business may 
be decided by a majority vote of the partners; but no 
act in violation of an agreement between the partners 
may be committedl without the consent of all the part- 
ners. 

6. Partnership books should be kept at the principal 
place of business and each partner at all times should 
have access to them and may inspect and copy any 
of them. 

7. Bach partner has a right to a formal accounting 
of partnership affairs : 

a. If the right exists under the terms of an agree- 
ment. 

b. Whenever other circumstances render it just and 
reasonable. 

8. Each partner must account to the others (and 
hold as trustee for them) for profits derived by him 
from any transaction connected with the formation^ con- 
duct or liquidation of the partnership or from the use 
by him of its property. 

Duration of Partnership. — The duration of a part- 
nership depends upon the agreement. However^ where 
a partnership^ created for a fixed term or to accomplish 
a particular undertakings is continued, without an ex- 
press agreement, after the term expires or the particular 
undertaking has been accomplished, the rights and 
duties of the partners remain the same as they were so 
far as may be. 



4 

I 



NOTES 171 



172 NOTES 









PARTNERSHIPS 173 

Partners are Co-owners. — Partners are co-owners 
with each other of speciiic partnership property, holding 
the same as tenants in partnership. A partner's right in 
this specific partnership property is not subject to dower, 
curtesy or allowances to widows^ heirs or next of kin. 
Nor can this right of a partner be assigned. 

May Assign Partnership Interest. — On the other 
hand, a partner's interest in the business, which repre- 
sents his share of the profits and surplus, is personal 
property, subject to assignment. 

Rights of Assignee. — Assignment by a partner of 
his interest to another does not give the assignee any 
rights in the management of the business; but merely 
gives him a right to such profits as would have accrued 
to the assignor. If the partnership is dissolved the 
assignee is entitled to receive his assignor's interest and 
may require an accounting thereon from the day of the 
date of the last account which was agreed to by his 
assignor and the other partners. 

(B) DISSOLUTION AND (C) WINDING UP 

(B) Dissolution 

Causes of Dissolution. — Dissolution of a partner- 
ship means the change in partnership relations caused : 

1. By a partner leaving the firm through death, 
bankruptcy or otherwise. 

2. By admission of a new partner. 

3. By completion of the particular undertaking 
specified in the partnership agreement or by completion 
of the term during which the partnership was to exist. 

4. By mutual consent. 

5. By breach of the partnership agreement. 



174 BUSINESS LAW 

6. By reason of anything which makes the business 
itself illegal or unlawful for the members to carry it 
on as partners. 

7. By decree of court. 

Effect of Dissolution on Partners' Authority. — 
Dissolution terminates all authority of any partner to 
act for the partnership except so far as may be necessary 
to wind up partnership affairs or to complete transac- 
tions begun but not yet finished. 

Effect of Dissolution on Partners' Liability. — 
It is hardly necessary to say that dissolution of a part- 
nership does not of itself discharge existing liabilities 
of the partners. Even in the event of the death of 
a partner his individual property remains liable for 
such obligations of the partnership as were incurred 
while he was a partner^ under and subject nevertheless 
to prior payment of his separate debts. • 

But dissolution may affect liability of partners 
among themselves, either expressly or impliedly ; and the 
partnership creditors may expressly or impliedly dis- 
charge any partner after the latter has quit the firm. 

(C) Liquidation (Winding up) 
Partnership Property to be Applied to Payment 
of Debts. — When the partnership is dissolved^ each 
partner, as against the others, and against persons claim- 
ing through them, may have the partnership propertj' 
applied to pay the debts and the surplus, if any, applied 
to pay the net amounts owing respective partners. 

Order of Priority of Debts. — In winding up a part- 
nership the following debts are paid in the order of pri- 
ority in which they appear in the appended list, subject 



NOTES 



175 



176 



NOTES 



PARTNERSHIPS 177 

to some agTeement to the contrary which the partners 
may make : 

1. Those owing to creditors other than partners. 

2. Those o\ving to partners for advancements made 
by them. 

3. Those owing to partnei^s on capital account. 

4. Those owing to partners respecting their profits. 
Insufficient Assets — Contributions from Partners. 

— If the assets are insufficient to satisfy the liabilities 
the partners should contribute their shares of the excess 
liabilities; and in addition should make up the share 
of an insolvent partner. Excess liability contributions 
may be enforced against any general partner to the full 
extent of his private resources; but if he has separate 
creditors they are entitled to be satisfied out of his sepa- 
rate property before the same may be levied upon by his 
partnership creditors. 

(D) RELATIONS OF PARTNERS TO THIRD PERSONS 

Tort Liability of a Partner — Contract Liabil- 
ity. — Partners are liable for the torts of a partner 
who acted within the scope of his authority as a partner 
or under special authority of his co-partners. Of course 
they are liable also for the torts of their agents. Part- 
ners are liable jointly for the contracts made by any 
one of the partners when such contract has been made 
within the authority or apparent authority of the part- 
nership. 

Charging Order. — One who secures a judgment 
against a partner upon an individual claim, may make 
application to Court to seize or charge the debtor^'s inter- 
est in the partnership. This is called a charging order. 



178 BUSINESS LAW 

The Court may make such order as it shall deem neces- 
sary and may even appoint a receiver for the debtor 
partner. 

Caption of Suits Against Partners. — Suits against 
a partnership must be brought in the names of the part- 
ners as follows : 



John Jones )c.P.Nol, 

VS. f 

William Smith and James Brown, trading 
as Smith, Brown & Company. 



j No. 9999. 



The relations of partners to strangers upon dissolu- 
tion have been sufficiently discussed above. 

Special Laws — Limited Partnerships. — In some 
states there is statutory provision made for limited part- 
nershipS;, where the liability of one partner is limited 
by the amount of his contribution, as though he were 
a stockholder in a corporation. 

Again^ some State laws require registration of part- 
nerships in order to facilitate court proceedings. 



NOTES 179 



180 NOTES 



XXV 
CORPORATIONS— JOINT STOCK COMPA- 
NIES—BUILDING AND LOAN ASSO- 
CIATIONS 

Definition of a Corporation. — A corporation is an 
artificial person or entity^ compo'Sed of a number of 
natural persons, created by law to accomplish a pur- 
pose whose performance may exceed the capacities of an 
individual or partnership. 

Classification of Corporations. — Corporations may 
be briefly classified as follows: 

1. Public, such as states and their municipal sub- 
divisions (cities, boroughs, etc.) 

2. Quasi-public, such as public service companies 
(railroads, power companies, etc.) 

3. Private, which may be for profit (business cor- 
porations generally) or those not formed for profit 
(churches, hospitals and clubs). 

Foreign and Domestic Corporations. — Corpora- 
tions formed by the State within which they are con- 
ducting their business are called domestic corporations ; 
while if incorporated under the laws of some other 
State they are known as foreign corporations. 

Each State prescribes a method by which individuals 
may apply to a proper official for the issuance of such 
charter as the State's general laws provide. Very few 
private corporations are now formed under special laws. 

181 



182 BUSINESS LAW 

Applications for Charter — Contents. — Applica- 
tions for charter usually contain the following informa- 
tion: 

1. The proposed corporate name. 

2. Purpose for which incorporation is sought. 

3. Place where business is to be transacted. 

4. Duration of corporate existence. 

5. Names and residences of subscribers and the 
number of shares subscribed by each. 

6. Amount of capital stock and the number and 
par value of the shares. 

Advertisement. — Most State laws require that char- 
ter applications be suitably advertised, and others re- 
quire that a proportionate amount of the capital stock 
shall be paid to a treasurer named in the application 
before the corporation may commence business. 

Incorporators. — The corporate existence necessi- 
tates stockholders, officers and directors. Stockholders 
usually hold meetings annually at which they elect per- 
sons who shall manage corporate affairs for the ensuing 
year. These persons are known as directors and ap- 
point agents who are known as executive officers. The 
president, vice-president, secretary and treasurer are 
thus designated. 

Corporate Powers. — A corporation has the follow- 
ing powers: 

1. To possess a corporate name and to sue and be 
sued in that name. 

2. To adopt and use a corporate seal. 

3. To elect managers or directors for the purposes 
of the business. 

4. To adopt by-laws. 



NOTES 183 



184 NOTES 



CORPORATIONS, LOAN ASSOCIATIONS 185 

5. To issue stock. 

6. To have succession of stockholders and such length 
of corporate life as the charter provides. 

7. To carry on such business as is authorized by 
the charter. 

Such corporations as are public and quasi-public in 
their nature may exercise the right of eminent domain. 

Corporate Liability. — A corporation is rendered ' 
liable in contract and in tort through the acts of its 
agents, and may be prosecuted criminally vi^here the 
punishment imposed is a fine. All officers and other 
appointive agents while acting for the corporation ren- 
der it generally liable for the consequences of their acts. 

Charter is Contract — Involuntary Surrender. — 
The charter of a corporation^ being a contract between 
a State and the incorporators, a State cannot revoke it 
without the consent of the stockholders, unless some 
such right of revocation is reserved in the grant. Ac- 
cordingly, the general corporation laws of most States 
now providie that any charter issued thereunder may be 
altered, amended or repealed by the incorporating State 
under suitable legislative enactment enforcible by a 
procedure called quo warranto, in charge of the State's 
attorney-general. Corporations may also be dissolved 
involuntarily by bankruptcy. 

Voluntary Surrender of Charter. — The corpora- 
tion may surrender its charter voluntarily or it may ex- 
pire by limitation either of time or otherwise. 

Receiver. — When a corporation dissolves — voluntar- 
ily or involuntarily — a receiver is usually appointed by 
the court to hold the corporate property, apply it to the 
payment of the corporate debts and to divide the re- 



186 BUSINESS LAW 

mainder among the stockholders in proportion to their 
holdings. 

Capital Stock. — The capital stock of a corporation 
is divided into a number of equal parts^ called shares of 
stock. These shares are evidenced by certificates which 
may be freely transferred by assignment. Stock may be 
common^ indicating ordinary ownership; preferred^ in- 
dicating ail ownership which possesses a prior right to 
dividends and distribution upon dissolution of the cor- 
poration. Ownership of preferred stock is similar to 
ownership of corporate bonds. Sometimes preferred 
stock is merely such for the current year; but if it is 
cumulative preferred stock its preference to dividends 
may accumulate from year to year. To illustrate : The 
X Company has outstanding seven per cent, cumulative 
preferred stock upon which nothing has been paid for 
four years. This year the Company makes a dividend 
profit of twenty per cent. All of this would be paid to 
the cumulative preferred stockholders^ leaving a balance 
of eight per cent, still due them which would have to 
be paid out of subsequently earned dividends before 
conunon stockholders would receive anything. 

Corporate Loans. — Corporations are frequent bor- 
rowers. The favorite method of raising money is for the 
corporation to make a mortgage of its plant and other 
assets to a banking house ; and the amount of the mort- 
gage is then divided up into equal parts called bonds, 
which, properly evidenced in writing and executed by 
the corporation, are sold to the public ; and the banking 
house or general mortgagee is trustee for these bond- 
holders. It is true that a corporation may borrow by i 



NOTES 187 



188 NOTES 



CORPORATIONS, LOAN ASSOCIATIONS 189 

straight bond and mortgage, by note or by issuing de- 
benture bonds; but usually the trustee form of mortgage 
with bonds issued thereunder is adopted. 

Rights of Stockholders. — Stockholders, as members 
of the artificial person or corporation, have the follow- 
ing rights: 

1. To vote at stockholders' meetings, casting one vote 
for each share of stock held. Where the statutes and by- 
laws permit, stockholders may vote cumulatively — that 
is, in electing directors, a stockholder may cast as many 
votes for a particular director as there are directors 
to be elected times the number of shares of stock he 
holds. 

2. To elect directors or other elective officers. 

3. To make by-laws. 

4. To share in the dividends or profits. 

5. To inspect the books. 

6. To stand as a candidate for office in the corpora- 
tion. 

Liabilities of Stockholders. — Excepting the case of 
national bank stockholders, one holding full-paid stock 
is not liable even though upon dissolution of his cor- 
poration its debts exceed the value of the assets. In 
other words, his liability is limited by the full-paid par 
value of his stock. However, if his stock is not fully 
paid for, the creditors may compel him to pay the bal- 
ance still due; and this is true even though his stock 
is marked " full paid and non-assessable ^^ if such is 
really not the case. 

Double Liability. — National bank stockholders are 
liable for an additional amount equal to the par value 
of the stock for which they already have paid in full. 



190 BUSINESS LAW 

JOINT STOCK COMPANIES 

In some States there is a provision for partnership 
associations or joint stock companies. These associa- 
tions partake of the nature both of a common law part- 
nership and of a corporation. 

Comparisons With Corporations and Partner- 
ships. — They resemble a corporation in that a stock- 
holder's liability for the debts of the association is 
limited by the amount of stock for which he has 
subscribed; the business of the association is con- 
ducted by " managers ^^ who correspond to the directors 
of a corporation. They must sue and be sued in the 
association name. They resemble partnerships in that 
members have a right to choose their associates and in 
the fact that transfer of a member's interest gives the 
transferee a right to an accounting only. 

The use of the word '^ limited '^ is generally re- 
quired, appearing on signs, stationery and checks after 
the name of the association. 

BUILDING AND LOAN ASSOCIATIONS 

A building and loan association is a corporation 
whose primary purpose is to enable stockholders to pur- 
chase homes. The par value of its capital stock is 
usually fixed at two hundred dollars per share and is paid 
for by members in installments of one dollar per share 
per month. Without investment a period of two hun- 
dred months would elapse before the share would be 
fully paid for ; but the money received from shareholders 
is immediately invested at the rate of six per cent, per 
annum, and this interest, plus premiums, membership 



NOTES 191 



192 NOTES 



' 



CORPORATIONS, LOAN ASSOCIATIONS 193 

fees^ fines and original contributions usually equals two 
hundred dollars a share in less than one hundred and 
forty months. When the shares are fully paid their 
value is distributed in cash to the stockholders. Some 
associations use certificates of stock but in most cases 
the evidence of membership held by the stockholder is 
his receipt book. Of course his ownership or interest is 
transferable by assignment. 

Loans. — In addition to ordinary members there are 
borrowing members, who may borrow that which they 
have already paid in — a stock loan, or may borrow on 
the security of real estate which is pledged under a bond 
and mortgage to the association. 

Loans on Mortgage. — To secure a mortgage loan 
of sixteen hundred dollars, A may subscribe for eight 
shares of stock upon which he pays eight dollars per 
month; and he must pay eight dollars per month as 
interest, a total of sixteen dollars per month. When 
the shares mature there are sixteen hundred dollars to 
repay to the association its loan. 

Safety Features. — Since building and loan associa- 
tions are really corporations to encourage savings, they 
are under control of State departments who make ex- 
aminations and require reports. The officers who have 
charge of the association's moneys are under bond, so 
that, when properly managed, a building and loan asso- 
ciation offers the best medium for investment of money 
by persons in moderate circumstances. 



XXVI 



TORTS— CRIMES— WRIT OF HABEAS 
CORPUS 

Definition of Tort. — Failure to discharge a duty 
which has been imposed by law^ if it leads to civil action 
for damages to recompense the injured party^ is called 
a tort. 

Kinds of Torts. — The commonest kinds of torts are 
negligence^ where some one is injured by reason of 
the carelessness of another; false arrest and malicious 
prosecution^ where one is arrested and imprisoned upon 
a malicious charge and without reasonable cause; slan- 
der, the spoken word which injures another person's 
reputation and its complement, libel, which is the writ- 
ten word having the same result; assault and battery, 
which is a physical attack upon another; deceit, where 
one man. has perpetrated a fraud upon another ; trespass 
upon land, which means entering upon real property 
without permission from the owner. 

Remedies for Torts. — All these are actionable as 
torts, that is, money damages may be recovered from the 
guilty party as compensation for injuries sustained. 
Assault and battery and libel are crimes as well, that 
is, the community will punish the offender by fine or 
imprisonment. It is well to note that except under 
certain special statutes, fines are paid into the public 
treasury, whereas damages are paid to the injured party. 

194 



NOTES 195 



196 NOTES 






TORTS, CRIMES, HABEAS CORPUS 197 

Definition of Crime. — A crime is a public wrong, 
while a tort is a private wrong. 

Theory of Punishment. — Public wrongs are pun- 
ishicd by the State or community upon three theories : 

1. To deter others from doing the same thing. 

2. To punish the guilty party and restrain him from 
repeating his offense. 

3. To reform the criminal himself by subjecting him 
to discipline. 

The Legislature specifies what are public wrongs 
or crimes and what shall be the punishment for com- 
mitting them. 

Act May be Crime and Tort Also. — Practically 
all crimes are also torts; and the State may punish the 
guilty party for his crime while the private prosecutor 
who has suffered injury or loss may sue him for dam- 
ages. Thus the State may execute a murderer and the 
family of the murdered man may sue the murderer and 
his estate for damages. 

Crimes, Torts and Breaches of Contracts Com- 
pared. — The difference between crimes^ torts and 
breaches of contracts appears clear if they are compared 
in the following ways: 

1. What is the obligation and how does it arise. 

2. To whom is the obligation due. 

3. What are the consequences of the breach. 
Thus the breach of a contract is the breaking of an 

obligation which has been voluntarily assumed; whereas 
torts and crimes are breaches of duties imposed by the 
community for the benefit of all. The obligation of a 
contract is due to a particular person only — the co-con- 
tractor ; whereas torts and crimes are breaches of obliga- 



198 BUSINESS LAW 

tions owing to every person in the community. Since 
torts and contract breaches are of an essentially private 
nature^ damages awarded to the injured party are suiR- 
cient to satisfy the law; but a crime^ striking terror 
to the entire community, must be punished by the pub- 
lic; to permit the criminal to pay his way would be 
subversive of all law and order. 

May Settle Contract Breach and Tort Out of 
Court. — It follows that contract and tort cases may be 
settled by the parties without recourse to law; or even if 
suit has been begun. 

Compounding a Felony to settle Grave Crimes 
Out of Court. — Not so with a crime^ for while it is true 
that the lesser crimes^ called misdemeanors^ sometimes 
may be settled out of court^ the attempt amicably to ad- 
just a grave crime or felony is in itself a crime. Thus 
an attempt by the widow to make a money settlement 
with the murderer of her husband would result in her 
indictment for compounding a felony. 

HABEAS CORPUS 

Explanation of Writ. — ^Habeas corpus is a writ 
summoning into court anyone unlawfully detaining 
or confining another. Process issues in the name of 
the State^ the petitioner for the writ being known as 
the relator. The defendant named in most cases is 
the warden of a prison. Upon service of the writ, the 
prisoner must be produced in open court when his ac- 
cusers or those responsible for his detention must show . 
cause why he should be restrained of his liberty. 



NOTES 199 



200 



NOTES 



TORTS, CRIMES, HABEAS CORPUS 201 

Right to Obtain Writ May be Suspended. — By 

the Federal and State Constitutions tlie right to obtain 
a writ of habeas corpus is guaranteed, altliough it may 
be suspended by the President of the United States 
or Grovernor of a State in times of great public danger. 
Must be Actually Restrained of Liberty. — Habeas 
corpus may issue out of a Federal as well as from a 
State court if the accused is actually confined; but it 
may not be obtained if he has been liberated on bail 
or otherwise. 



XXYII 

COURTS— STATUTE OF LIMITATIONS- 
SET-OFF 

Courts Classified: Of Record; Not of Record. — 

Courts may be divided into two classes^ those of record 
and those not of record. The courts of record are: 

1. Municipal^ specially established in large cities, 
such as Philadelphia and Chicago. 

2. Commons Pleas or County. 

3. Orphans' or Surrogates\ 

4. Quarter Sessions of the Peace, Oyer and Ter- 
miner and General Jail Delivery. 

5. Superior and Supreme^ — appellate courts. 

6. The United States District Courts. 

7. The United States Circuit Courts of Appeals. 

8. The United States Supreme Court. 
Courts not of record include : 

1. Justices of the Peace. 

2. City Magistrates. 

3. United States Commissioners. 

Jurisdiction of Municipal Courts. — The Municipal 
Court of Philadelphia was established by Act of As- 
sembly in 1913. It has jurisdiction in contract cases 
to an amount not exceeding six hundred dollars, and 
in tort cases to an amount not exceeding fifteen hun- 
dred dollars. Its jurisdiction also includes desertion, 
non-support and juvenile cases. This Court was created 
as the first step in abolishing the office of Magistrate 
and also to relieve the congested lists in the Common 

202 



1 



NOTES 203 



204 NOTES 



.1 

I 



COURTS, LIMITATIONS, SET-OFF 205 

Pleas Courts. Trials are bad before a judge without a 
jury unless a jury trial is demanded. This court has 
a limited criminal jurisdiction, too. 

Jurisdiction of County Courts. — The Common 
Pleas or County Courts have jurisdiction in contract 
cases to any amount. Xor is there a money limit to 
their jurisdiction in tort cases. They have jurisdiction 
under various laws to hear applications for appoint- 
ments of guardians and committees in insanity and 
feeble-minded cases. The judges of the Common Pleas 
are usually judges of the criminal courts, also, one of 
their number being appointed therein monthly. 

Jurisdiction of Orphans' Courts. — The Orphans' 
or Surrogate's Court has jurisdiction over the estates 
of deceased persons and over appointments and discharge 
of guardians for minors. The Eegister of Wills is 
ex-officio Clerk of the Orphans' Court, so that the entire 
administration of estates is under one judicial control. 

Criminal Courts.— The Courts of Quarter Sessions, 
Oyer and Terminer and General Jail Delivery are so 
closely allied that they will be treated as one. The 
Quarter Sessions is the court where the lesser crimes 
are tried. This Court in Pennsylvania also has juris- 
diction over applications for the sale of liquor, the ap- 
pointment of viewers to assess damages in eminent do- 
main proceedings and the granting of licenses to pri- 
vate detectives. The Court of Oyer and Terminer is 
the Court where grave criminal charges are tried, such 
as murder, manslaughter, highway robbery, etc. 

Appellate Courts. — The Superior and Supreme 
Courts are known as appellate or appeal courts. The 
Superior Court in Pennsylvania has jurdisdiction of 



206 BUSINESS LAW 

appeals in civil cases to an amount not exceeding fifteen 
hundred dollars and exclusive appellate jurisdiction in 
divorce and in most criminal cases. The Supreme Court, 
however^ may grant appeals in any case from the Su- 
perior Court. The Supreme Court has original appel- 
late jurisdiction in all cases involving more than fifteen 
hundred dollars. It also has special original jurisdic- 
tion in certain cases. 

Jurisdiction of United States District Courts. — 

The District Court of the United States corresponds 
to the Common Pleas in its civil jurisdiction and to 
the Quarter Sessions and Oyer and Terminer in its 
criminal jurisdiction. It has special jurisdiction over 
all cases in which there is a question involving the con- 
struction of the Constitution of the United States; and 
where the parties litigant are residents of different states. 
For either of these reasons a case begun in a State 
court may be removed to the United States District 
Court upon petition filed therein. 

Federal Appellate Courts. — The United States Cir- 
cuit Court of Appeals is an appellate Court to which 
appeals lie from the District Court. 

The United States Supreme Court is the Court of 
last resort either on appeal from the United States 
Circuit Court of Appeals or from a State Supreme 
Court. The Supreme Court of the United States also 
has original jurisdiction in certain cases ; an illustration 
of this is where states are parties litigant. 

Few Appeals from State Court to United States 
Supreme Court. — Appeals from State Supreme Courts 
to the United States Supreme Court are infrequently 
made since they must be specially allowed either by the 



NOTES 207 



208 NOTES 



COURTS, LIMITATIONS, SET-OFF 209 

State Supreme Court whose decision is questioned^ or by 
a Justice of the Supreme Court of the United States. 

Magistrate and Justice Courts. — Courts not of 
record^ such as Magistrates' Courts or Justice of the 
Peace Courts, are so called because they keep no per- 
manent record of the cases heard. Their powers are 
extremely limited and the judges need not be learned 
in the law. Magistrates' Courts have jurisdiction in 
contract cases to an amount not exceeding one hundred 
dollars but appeals to the Municipal or County Courts 
lie where the amount of the judgment exceeds five or ten 
dollars. The judges sit as committing magistrates 
to hear evidence in criminal cases. They may discharge 
the prisoner; or hold him to bail and return the case 
to court; or summarily convict and sentence him. Ap- 
peals lie from summary convictions in criminal cases 
since the Constitution guarantees the right of trial by 
jury. Magistrates have no jurisdiction in tort cases. 

Federal Magistrates. — United States Commission- 
ers are the committing magistrates of the Federal Courts 
with similar powers to the State magistrates. Crimes 
against the United States include counterfeiting and 
violation of the postal laws. 

STATUTE OF LIMITATIONS 
Reason for Law. — In order to discourage the suing 
out of old claimS;, whether they arise from contract or 
in tort^ as well as to protect a man against stale prose- 
cution, the Legislature of each state has limited the 
legal life of a civil right and of a criminal charge. And 
when the period fixed by the statute has expired, the 
claim or charge dies and neither suit nor prosecution 



210 BUSINESS LAW 

may then be commenced. They are said to be ^^ barred ^' 
by the Statute. 

Periods of Limitation in Contract. — Ordinary con^ 
tract claims are barred at the expiration of six years 
from the time the debt became due ; those arising out of 
contracts under seal are barred by the Statute at .the 
expiration of twenty years. The due date of a book- 
account where there are debits and credits is the date 
of the last entry and the entire account may be sued 
upon although the first entry is more than six years old. 

Revival of Barred Claim. — A debt may be revived 
by acknowledging it, thus removing the bar of the 
Statute. Eevival may take place as follows: 

1. B}' the debtor making a new promise to pay. 

2. By paying part of the principal of the debt. 

3. By the debtor paying interest on the debt. 
Period of Limitation in Tort. — All tort actions 

are barred by the Statute at the expiration of two year^ 
from the date when the cause of action arose; although 
by special statutes some tort actions are barred at the 
expiration of one year. 

Period of Limitation in Criminal Cases. — Ordi- 
nary criminal cases may not be prosecuted after the 
expiration of two years from the date when the offense 
was committed. This period applies to most of the 
lesser crimes or misdemeanors. However, some cases 
of embezzlement by trustees or others in a fiduciary 
capacity are barred in from three to five years. The 
grave crimes are either not affected by the Statute or 
else the term during which prosecution may be begun 
is greatly increased in length. For instance, murder 
is never barred by the Statute. 



NOTES 211 



I 



» 



212 NOTES 






COURTS, LIMITATIONS, SET-OFF 213 

• 

Prosecution Stops Running of Statute. — The run- 
ning of the Statute in favor of the defendant is said 
to be tolled or stopped when the prosecution is begun, 
even though the defendant has fled the jurisdiction of 
the court. Thus I may swear out a warrant for the 
arrest of A, charging him with embezzlement, and secure 
an indictment against him; and although he may flee 
from the State of Pennsylvania and I cannot find him 
for five years yet the Statute does not run in his favor. 

The Statute is tolled in civil cases when suit is com- 
menced. 

SET-OFF 

Definition. — Set-off, or counter-claim as it is some- 
times called, is a remedy created by statute to prevent 
circuity of action and to save expense and time in litiga- 
tion. 

Set-Off May Extinguish Plaintiff's Claim. — A 
defendant in a contract suit may defend against the 
plaintiff by averring a counter-claim arising out of an- 
other contract made between the parties ; and this coun- 
ter-claim, if allowed by the court, may diminish or com- 
pletely extinguish the claim of the plaintiff; indeed, if 
it is allowed in a larger sum than the plaintiff^s demand, 
the defendant may take judgment for the excess and 
issue execution against the plaintiff. 

Must be in Contract. — To be allowed as a set-off 
under the law, the counter-claim must arise from a 
contract claim; no tort claims can be used as a set- 
off. The set-off need not be for a liquidated amount, 
however, and when the defendant claims it, he asks the 
court to grant him a certificate of damage if he can 
prove the amount of it at the trial of the case. 



XXVIII 

CIVIL PROCEDURE 

Definition. — Civil procedure is the method pre-, 
scribed by law to determine the rights and liabilities 
of parties to a civil action. Where A sues B for breach 
of contract it is a civil action and the judicial method 
used to determine the rights and liabilities of A and B 
is called civil procedure. Civil actions include all suits 
at law and in equity excepting those which are of a 
criminal nature. 

Parties. — The parties to an action are the plaintiff 
and the defendant. The plaintiff is the person bringing 
the suit while the defendant is the person against whom 
it is brought. 

Where Suits are Instituted.^ — Suits involving 
small sums of money may be entered before a magistrate 
or justice of the peace^ while those involving larger sums 
may be instituted in the Municipal and CommLon Pleas 
Courts. 

Summons and Statement of Claim. — The plaintiff 
first files a statement of claim or paper setting forth his 
demand with his reasons therefor. This is filed with the 
Prothonotary or clerk of the court and^ together with a 
summons, is served on the defendant by the Sheriff; 
the summons being a command to the defendant to ap- 
pear in court on a specified day. If the defendant does 
not appear, judgment may be entered against him. 

Answer of Defendant. — After the statement of 
claim has been served upon the defendant he has a cer- 
tain length of time within which to file an answer, some- 
214 ^ 



NOTES 215 



i 



216 NOTES 



^ 



CIVIL PROCEDURE 217 

times called an " affidavit of defense/' which recites the 
facts upon which he relies for his defense. If he doe^s 
not file his answer within the specified time — usually 
from ten to fifteen days after service upon him of the 
statement of claim — judgment may be entered against 
him for want of it. If the answer when filed is deemed 
insufficient to make out a prima facie defense, judgment 
may be entered against him for want of a sufficient 
answer; but if an apparently legal defense is disclosed, 
it is said that the case is at issue. The plaintiff may 
then order it to be placed upon the trial list or calendar 
of cases, when in due course it will be reached and 
tried in court. 

Trial Judge.— A judge, called the trial judge, pre- 
sides at the trial to determine questions of law including 
those relating to the admission of evidence. After the 
testimony has been heard, he also instructs the jury 
upon the application of the law to the facts before them. 

Jury. — The jury is called by the court crier and if 
counsel for either party has any valid objection to any 
of the jurors, others will be substituted in their places. 
When a jury finally has been selected, its members are 
sworn to hear the witnesses and render a verdict in ac- 
cordance with the evidence. The trial is then ready 
to proceed. 

Issue. — By the pleadings, that is, the statement of 
claim and answer, an issue of fact has been raised; 
and it is to determine this issue that the trial is had. 
The plaintiff has the burden of proving his contention 
and calls witnesses to tesify for him. 

Witnesses. — Persons who are to be summoned as 
witnesses are served with a paper called a subpoena which 



218 BUSINESS LAW 

commands them to appear in court on a certain day and 
threatens a penalty if they do not appear. Witnesses 
failing to obey a subpoena are placed under arrest by 
a court officer^ brought before the judge and sometimes 
severely punished. The power of courts to compel at- 
tendance of witnesses is founded upon their general 
powers to punish for contempt of court. 

Testimony and Examination by Lawyers.- — A 
witness goes upon the witness-stand^ is sworn and then 
tells his story. He may be questioned by the lawyer 
for either party. When the plaintiff's witnesses have 
finished testifying^ he rests; that is^ he has placed his 
side of the case before the jury and awaits the testimony 
of the defendant. 

Non-Suit. — At this pointy if the attorney for de- 
fendant is of opinion that the plaintiff has not estab- 
lished an apparent right to a verdict^ he will ask the i 
court to enter a non-suit against the plaintiff. This * 
means that the latter loses the contest at once without 
the defendant being required to offer any testimony. 

Defense. — The court may refuse the non-suit and 
then the case will proceed^ the defendant calling his wit- 
nesses^ who may be questioned by the lawyers as the 
other witnesses were questioned. 

Points for Charge — Binding Instructions. — When 
all the evidence has been heard^ counsel for either side 
may give the court points for charge and motions for 
binding instructions. A point for charge is a written 
request to the court (judge) to instruct the jury in a 
certain way; while a motion for binding instructions 
is a written request that the court tell the jury that 
under all the evidence before them they must render a 



NOTES 219 



£20 NOTES 



4 



CIVIL PROCEDURE 221 

verdict for either the plaintiff or the defendant, as the 
case may be. 

Lawyers' Speeches. — The attorney for the plaintiff 
then addresses the jury, summarizing the testimony, 
sometimes showing how the law applies and always ask- 
ing them to find a verdict for his client. The de- 
fendant's counsel then makes a like plea. Counsel for 
the plaintiff usually has a right to reply, thus secur- 
ing the advantage of the last word. 

Charge of Court. — The court then addresses or 
" charges ^^ the jury, briefly reviewing the evidence and 
instructii^g the jurors upon points of law involved; 
and he may also give them binding instructions in 
favor of either party. If no binding instructions are 
given, the case then is considered by the jury, who, 
after due deliberation, render their verdict. 

Motions for New Trial. — Within a few days (usu- 
ally four days) after the verdict has been rendered, 
the losing party, if he be of the opinion that the ver- 
dict was improperly rendered and injustice has been 
done, may file written objections to bring the matter 
before the court again; but if no objections are filed, 
judgment may be entered upon the verdict. 

Trial Without a Jury. — If a case is tried before a 
judge without a jury, the proceedings are the same 
as above, except that the judge decides the facts as 
well as the law; and his decision is termed a "find- 
ing'' instead of a "verdict." 

Appeals. — Appeals from judgments obtained in 
the manner described are based upon questions of law 
and are of too technical a nature to warrant discussion 
here. 



XXIX 

CRIMINAL PROCEDURE 

Knowledge of Criminal Law a Necessity. — If a 

man be sued civilly or if he himself is the plaintiff 
he is more or less a by-stander; consequently he may 
leave intimate knowledge of civil procedure to his 
lawyer. But if he be arrested charged with a crime 
he is such a principal that he cannot have too much 
personal knowledge of his rights; he cannot afford to 
put his liberty or perhaps his life solely in the hands 
of his attorney. A certain celebrated case recently de- 
cided in favor of the defendant owes its conclusion 
to the knowledge which the defendant had concerning 
his own case. 

All the People Against One. — The defendant 
should realize that the state has the power and re- 
sources of all the people and that he stands alone, 
resting upon the presumption of his innocence. 

Arrests— How Made. — Arrests on criminal charges 
may be made in one of two ways : 

1. By warrant, supported by affidavit of the person 
aggrieved. 

2. Without warrant. 

By Warrant Upon Affidavit. — The person ag- 
grieved or injured may go before any magistrate or 
justice of the peace and there make affidavit to facts 
disclosing a crime; whereupon it is the duty of the 
magistrate or justice of the peace to issue a warrant 

222 



NOTES 223 



224 NOTES 



CRIMINAL PROCEDURE 225 

requiring any officer of the law to take the body of 
the defendant named in the warrant and confine him 
if necessary so that he may appear before the magis- 
trate for a hearing. He who makes the affidavit is 
thereupon called the private prosecutor to distinguish 
him from the State or public prosecutor. 

Service of Warrant. — Most warrants are served by 
constables but they may be served by any peace officer, 
such as a policeman. 

Hearing Before Magistrate or Justice. — At the 
hearing, the question before the magistrate is whether 
or not the defendant appears to have committed a 
crime under the laws of the commonwealth. If it 
appears that he has done so, the magistrate will hold 
him for court; but if not, the magistrate will dis- 
charge him. 

Summary Convictions — Right of Appeal. — In 
most States there is a procedure whereby a magis- 
trate may try petty offenders and dispose of their 
cases at once. These are known as summary convic- 
tion cases because the magistrate may sentence the 
prisoner to the House of Correction, Eeformatory or 
the County Prison. Idle and disorderly persons, 
habitual drunkards and breach of ordinance cases come 
within this classification. As said in a previous lec- 
ture, a defendant summarily convicted has a right to 
appeal to the Quarter Sessions and to be tried there 
before a jury. 

Case Returned to Court. — If the magistrate de- 
cides to hold the defendant for court he may fix the 
amount of bail necessary to secure the defendant's ap- 
pearance in court, or he may commit him to jail with- 



226 



BUSINESS LAW 



out bail as in murder, highway robbery and burglary 
cases. 

Habeas Corpus. — Where the magistrate commits 
without bail a writ of habeas corpus may be secured 
or bail may be fixed by a judge of the Oyer and 
Terminer Court. If the prisoner secures bail he re- 
mains at liberty until the day of his trial in the crimi- 
nal court. If he is unable to secure bail, he remains 
in the county prison until that day. 

BAIL 

Justification of Bail. — The person who desires to 
become bail for the release of the defendant from 
prison is sworn by the magistrate and then questioned 
or examined concerning the real estate which he owns. 
This examination should disclose the location, assess- 
ment, value and incumbrances of the property and is 
known as the justification of bail. When the bail- 
bond has been signed by the bail and by the defendant, 
the latter is released. 

Bail-Bond — Suit Thereon. — The bail-bond is made 
to the Commonwealth as obligee and contains a con- 
dition that if the defendant appear for trial the bond 
shall be void ; otherwise to be in full force and effect. 
Notice that the defendant's case is on the list for trial 
is sent to the bail, and it is his duty to produce the 
defendant on the day fixed. If the defendant does not 
appear then the Commonwealth, through the District 
Attorney, may ask leave of court to sue out the bail- 
bond. 

Bail-Piece. — In order to protect him from suit upon 
the bond the bail has a right to surrender the defend- 



NOTES 227 



228 NOTES 






CRIMINAL PROCEDURE 229 

ant at any time before trial; and if the defendant, 
while at liberty on bail, should flee the jurisdiction of 
the court, the bail may secure from the court a paper 
called a bail-piece and upon this paper may arrest the 
defendant wherever he may be found. A man arrested 
upon a bail-piece may be taken across a state line with- 
out extradition proceedings being had. 

Arrest Without Warrant. — Any peace officer (po- 
liceman) or constable may arrest without warrant one 
who is engaged in the commission of a crime; or the 
arrest may be made without warrant upon suspicion 
that the defendant is committing a crime or is about 
to commit one. These are instances of arrest ^^ on 
view.^^ 

But if there is no warrant, or if there is no crime 
being committed nor reasonable ground for suspicion, 
then no arrest should be made unless a warrant is 
first obtained. 

Indictment by Grand Jury. — After the hearing 
has been held by the magistrate and defendant has 
not been discharged, his case is returned to the crimi- 
nal court. Properly prepared by the District Attorney 
it is presented to the grand jury of the county in which 
the offense has been committed and if the members 
of the grand jury believe that a prima facie case has 
been made out against the defendant they return a 
true bill of indictment against him. Otherwise the 
grand jury will ignore the charges and the defend- 
ant will not have to answer in the criminal court. 
The District Attorney and the Commonwealth's wit- 
nesses appear before the grand jury but the defense 
is not heard. 



230 BUSINESS LAW 

Trial — Pleas. — If a true bill of indictment is found 
the defendant is tried in the criminal court before a 
jury of twelve men, when he pleads either guilty or 
not guilty. If he pleads guilty he is immediately 
brought before the court for sentence but if he pleads 
not guilty his case will be decided by the jury. If 
they acquit him he is discharged at once. If they 
find him guilty the court will then pronounce sen- 
tence. 

Sentence. — Space forbids discussion of suspended 
sentence, indeterminate sentence and parole. 



I 



NOTES 231 



232 



NOTES 



XXX 
BANKRUPTCY 

Definition of " Bankrupt." — A bankrupt is a per- 
son^ natural or artificial (corporation), whose assets 
are insufficient to pay his debts in full, and whose 
acts have brought him within the scope of the Federal 
bankruptcy laws. 

Sources of Bankruptcy Law. — The framers of 
the United States Constitution wisely made provision 
for the establishment of bankruptcy laws and at vari- 
ous intervals Congress has passed laws upon the sub- 
ject. By the Federal Act of 1898 and its supplements, 
the present bankruptcy laws were established and have 
proved generally satisfactory. 

Purposes of the Law. — Bankruptcy laws have 
three general purposes: 

1. The prevention of fraud. 

2. The discharge of honest debtors. 

3. The distribution of the bankrupt's estate among 
his creditors. 

Kinds of Bankruptcy. — There are two kinds of 
bankruptcy^ voluntary and involuntary. 

Voluntary Bankruptcy. — In voluntary bankruptcy 
the bankrupt himself asks to be adjudicated (declared 
by the court to be) a bankrupt; and any person who 
has not sufficient assets to pay his debts in fuU^ and 
all corporations with the. exception of municipal^ rail- 
road, insurance and banking corporations^ may be- 
come voluntary bankrupts. 

233 



234 BUSINESS LAW 

Involuntary Bankruptcy. — Natural persons (ex- 
cepting wage earners and farmers)^ and any monied, 
business or commercial corporation with the exception 
of those named above^ owing debts of one thousand dollars 
or morC;, upon petition of three creditors whose claims 
against the debtor amount in the aggregate to five hun- 
dred dollars or more (exclusive of secured claims and 
preferences) may be thrown into involuntary bank- 
ruptcy. Also^ where the whole number of creditors 
does not exceed twelve, then any one creditor having 
claims against the debtor (exclusive of secured claims 
and preferences), exceeding five hundred dollars or 
swore, may file a petition in involuntary bankruptcy. 

Jurisdiction — Parties in Interest. — All proceedings 
are under the jurisdiction of the District Court of the 
United States. The following persons are interested: 

1. The bankrupt. 

2. The judges of the District Court. 

3. The referee. 

4. Trustees. 

5. Keceivers. 

6. Appraisers. 

7. Attorneys. 

8. Witnesses. 

9. Creditors. 



I 



Bankrupt. — 1. The bankrupt, as said above, is the ! 
person, either natural or artificial, who has not suf- 
ficient assets to pay all his debts and whose estate is * 
to be administered in the bankruptcy proceeding. 

Judges. — 2. The Judges of the District Court have 
exclusive jurisdiction and control over the administra- 



NOTES 235 



^36 NOTES 






BANKRUPTCY 237 

tion of the estate of the bankrupt but delegate a great 
measure of their authority to an official called a Kef eree. 
Referee: His Duties. — 3. The Referee is a ju- 
dicial officer who is appointed by the District Court 
for a period of two 3^ears; and he may be reappointed 
at the discretion of the Court (as a matter of fact;, most 
referees hold office during good behavior). The judge 
of the District Court refers an estate in bankruptcy to 
the Referee who then has exclusive jurisdiction in ad- 
ministering it. He passes judicially upon the claims 
of creditors; approves the selection of a trustee chosen 
by the creditors; if necessary^ appoints a receiver to 
take temporary charge of the estate. He issues all or- 
ders for the conduct of the business or its sale; and 
determines the right of creditors to participate in the 
funds thus created^ declaring the dividend to which they 
are entitled. Determines the right of those claiming 
priority and adjudicates all controversies that may 
arise in respect to the assets. Claimants^ whose prop- 
erty is in the hands of the bankrupt at the time of the 
bankruptcy, must come before the referee with a peti- 
tion for reclamation; while creditors holding assets of 
the bankrupt in pledge may have the value of their re- 
spective securities determined by him. He passes upon 
the compensation of receivers and trustees, and, after 
approval of the creditors, fixes the fees of attorneys 
representing the bankrupt and the trustee. He pre- 
sides at and participates in the examination of the 
bankrupt and other witnesses ; directs the placing of 
funds of the bankrupt estate in legal depositories, 
where they are held subject to his counter-signature. In 
all these matters his jurisdiction equals that of the 



238 BUSINESS LAW 

District Court; and unless appealed from^ his orders 
are final. 

Trustee. — The trustee is elected by the majority 
(both in number and amount) of the creditors, such 
election being approved by the referee. A trustee is 
obliged to give bond when he commences the perform- 
ance of his duties, usually in an amount double the 
value of the bankrupt estate. He becomes vested with 
the title or ownership of the bankrupt's property, en- 
abling him to maintain and defend suits at law in the 
name of the bankrupt ; and converts all assets into cash, 
thus making it possible for the creditors to receive their 
dividends. In some cases he continues the business of 
the bankrupt. 

Receiver. — 5. To preserve the assets of the estate 
before the election of a trustee has taken place, the 
referee may appoint a receiver who becomes custodian 
of them; but upon election of a trustee, he is dis- 
charged. 

Appraiser. — 6. Appraisers are those persons who 
appraise the value of the bankrupt's estate. 

Lawyers. — 7. The bankrupt, trustee and other par- 
ties to bankruptcy proceedings have their interests 
represented by counsel, whose duties are those ordi- 
narily incumbent upon a practising attorney in the 
conduct of a client^s business. 

Witnesses. — 8'. Witnesses are those persons called 
to testify. 

Creditors. — 9. Creditors are those persons who have 
provable claims against the bankrupt and who are en- 
titled to elect a trustee and share in the distribution 
of dividends. 



NOTES 239 



240 



NOTES 



I 



BANKRUPTCY 241 

How Proceedings Begin. — All proceedings in 
bankruptcy are begun by petition, the bankrupt him- 
self filing it in voluntary proceedings and the creditors 
filing it in involuntary bankruptcy. It should be noted 
that the bankrupt is not entitled to a jury trial ex- 
cept upon the questions of his insolvency and his com- 
mission of an act of bankruptcy. 

Acts of Bankruptcy. — The Act designates the fol- 
lowing to be acts of bankruptcy, they having been com- 
mitted within four months of the filing of the petition : 

1. That the debtor has conveyed, transferred, con- 
cealed or removed (or permitted same to be done) part of 
his property w4th intent to hinder, delay or defraud 
creditors. 

2. That while insolvent, he has transferred property 
to one or more creditors with intent to prefer such credi- 
tor over other creditors. 

3. That while insolvent, he permitted a creditor to 
obtain preference through legal proceedings. 

4. That he has made a general assignment for the 
benefit of creditors; or, being insolvent, applied for a 
receiver or trustee. 

5. That he has admitted in writing his inability 
to pay his debts and his willingness to be adjudged a 
bankrupt on that ground. 

Meetings Before Referee. — The case having been 
referred to a referee, it becomes his duty to call a meet- 
ing of creditors, at which meeting he presides. Credi- 
tors then present their claims in the proper manner 
and it is the duty of the referee to pass upon them. 
Those whose claims are allowed are entitled to par- 
ticipate in the administration of the estate. 



242 BUSINESS LAW 



% 



The first business is to elect a trustee whose duties 
have already been outlined. 

Examination of Bankrupt. — The bankrupt is 
obliged to submit to an examination before the judge 
or referee concerning his property and conduct; and 
any other person^ including the wife of the bankrupt, 
may be similarly subjected to an examination concern- 
ing these matters. The discretion of the referee, only 
limited by the constitutional right of the witness not 
to incriminate himself, determines the scope of the in- 
quiry. 

Discharge of Bankrupt. — The bankrupt is dis- 
charged under a petition filed by him for that purpose, 
after he has been examined and has transferred his 
assets to his trustee ; and he is entitled to it unless one 
of his creditors or his trustee objects thereto because 
of the commission by him of such crimes, frauds or 
misrepresentations as are specified in the Act; or be- 
cause of his failure to obey a lawful order or answer 
a material question; and in voluntary proceedings, un- 
less he has been granted a discharge within six years. 

May Re-enter Business. — Where a bankrupt has 
been thus discharged he is free to enter business again 
if he so desires. 

Claims Not Discharged. — However, there are some 
claims that are not released by his discharge in bank- 
ruptcy. They are as follows: 

1. Taxes due to the United States, State, County 
or Municipality. 

2. Liability for obtaining property by false pre- 
tenses; for wilful and malicious injuries to the person 



NOTES 243 



244 



NOTES 



I 



BANKRUPTCY 245 

or property of another; and for alimony or main- 
tenance and support of wife or child. 

3. Debts that hava not been duly scheduled for 
proof and allowance^ unless such creditor had notice 
or actual knowledge of the proceeding in bankruptcy. 

4. Debts created by his frauds embezzlement, mis- 
appropriation or defalcation while acting in any 
fiduciary capacity. 

It should be noted in passing that these debts are 
provable, and the owners of them may take dividends, 
but they are not discharged unless entirely paid. 

Composition. — The Bankruptcy Act provides also 
for composition proceedings. Briefly, " composition '^ 
means that the creditors and the debtor come to an 
agreement w^hereby the creditors are willing to take a 
certain percentage on the dollar in full satisfaction of 
their claims. A debtor who wishes to arrange for a 
composition secures the signatures of a majority in 
number and amount of his creditors, agreeing to the 
proposed composition. Then a ludge* of the District 
Court, if he be of opinion that it is for the best interests 
of the creditors, that the debtor has done no act that 
would prevent his discharge in bankruptcy and has 
acted in good faith, may affirm the composition. 

Advantages of Composition.^Composition, com- 
pared with bankruptcy, offers an advantage to the 
debtor in that it enables him to continue his business; 
and it is much cheaper for the creditors since the costs 
are not so large as in bankruptcy proceedings. 



XXXI 

INTERSTATE COMMERCE COMMISSION- 
PUBLIC SERVICE COMMISSIONS 

Fear of Monopoly. — During the period of com- 
mercial expansion immediately succeeding the Civil 
War the people of the United States became alarmed 
at what they believed to be evidences of combinations 
in restraint of trade. It may very well have been that 
these evidences were really the results of an inevitable 
trade growth ; but the people believed that the tendency 
towards monopoly should be curbed. 

Sherman Anti-Trust Law — Interstate Commerce 
Commission Created. — In 1890 was passed the fam- 
ous Sherman Anti-Trust Law which was the fore- 
runner of many similar laws. It was believed that 
these laws should be administered by some executive 
authority^ and in response to this idea Congress created 
the Interstate Commerce Commission. The Commis- 
sion, however^ was left without adequate powers to 
enforce the laws until about 1906^ when Congress con- 
ferred upon it additional powers which have been in- 
creased since that time. 

Anti-Trust Laws. — It is impossible here to enter 
into an extended discussion of these laws which include 
the Hepburn Act^ prohibiting a common carrier trans- 
porting goods of which it is the owner, except such as 
are intended for its own use; the Elkins Act which 
prohibits soliciting, offering or accepting rebates; the 
Clayton Act, the main provisions of which will go into 
effect in October, 1916; and the Act which directs the 

246 



NOTES 247 



248 



NOTES 



COMMISSIONS 249 

Interstate Commerce Commission to make a physical 
valuation of railroad property in the United States. 
Duties of Interstate Commerce Commission. — 

The Interstate Commerce Conmiission is a body of 
seven men appointed by the President of the United 
States, whose duties are to enforce Federal laws relating 
to interstate and foreio-n commerce. The Commission 
supervises charges for the transportation of passengers 
and freight and for the transmission of messages by 
wire and by wireless; enforces reasonable regulations 
concerning classifications, rates, accepting, packing, 
handling — including icing, storage and terniinal charges 
— and delivering of freight, baggage and express mat- 
ter; the issuance of tickets and passes; prescribes a 
uniform method of bookkeeping for common carriers 
and requires annual reports from them; prosecutes in- 
quiries into railroad disasters — both physical and finan- 
cial — both in person or by agents in any part of the 
United States; enforces the provisions of the various 
safety appliance Acts concerning signal systems, loco- 
motive boilers and ash pans, automatic couplers and 
transportation of explosives, etc; enforces Acts relat- 
ing to hours of service of interstate railroad employees; 
supervises the issuance of medals of honor for saving 
life in railroad disasters; revises the classifications of 
the Parcel Post; enforces laws requiring furnishing of 
side tracks and cars to shippers; prohibiting railroads 
from acquiring competing lines; requiring names of 
agents to be posted in railroad stations ; requiring copies 
of rates and classifications and traffic contracts to be 
filed with the Commission, and requiring carriers to 
give thirty days' notice of proposed changes in rates. 



250 BUSINESS LAW 

Interstate Scope. — The activities outlined above are 
confined to the regulation of interstate and foreign busi- 
ness carried on by persons and corporations such as 
pipe line, telegraph, telephone, cable, wireless, railroad, 
express, sleeping car and steamship companies. 

Powers of Commissions. — Properly to exercise 
these regulatory functions the Commission has been 
empowered to subpoena and examine witnesses and to 
compel the production of books and papers anywhere 
in the United States. Persons aggrieved or who allege 
that the Federal laws regulating interstate and foreign 
commerce have been violated^ may file complaints; and 
upon hearing, the Commission may dispose of same and 
may award damages. If the damages be unpaid, suit 
may be begun upon said awards in the appropriate 
United States District Court. 

Powers of Federal Courts. — Any United States 
District Court of proper jurisdiction may enforce, 
suspend or annul any order of the Commission. 

Public Service Commissions. — Following in the 
path of Congress many of the States have established 
bodies similar in nature to the Interstate Commerce 
Commission, to supervise public service corporations in 
their methods of conducting business within a par- 
ticular State; in other words. State laws and regula- 
tions are enforced by these State bodies against the 
same class of persons and corporations, who, if doing 
an interstate business would be supervised by the In- 
terstate Commerce Commission. 

The Pennsylvania Commission. — The Pennsyl- 
vania Public Service Commission which was established 
by a law approved in 1913, succeeding the State Rail- 
road Commission, is typical of these State commissions. 



NOTES 251 



252 NOTES 



